Beijing - When is a Chinese company not Chinese? When it's a complex web of offshore vehicles rooted in anonymous tax havens.
That description includes some of the People's Republic's most successful and innovative companies. It will make the country's apparent new push on tax evasion hard to enforce.
Authorities have extracted 840 million yuan (R1.5 billion) in unpaid taxes from a multinational identified only as “M Corporation”, state newswire Xinhua reported on November 23.
The company artificially depressed its taxable profit in China by paying high fees to its US parent.
China outlawed that kind of transfer pricing as early as 2008.
But policing is hard, because foreign and local companies have got used to fiendishly complicated structures spanning several jurisdictions.
In many cases, that's helpful rather than harmful.
The Cayman Islands or the British Virgin Islands have little red tape, making it easier for companies based there to set up quickly, work around onerous local rules and tap foreign capital via stock exchanges in Hong Kong or the United States.
Without convoluted chains of ownership and influence, successful Chinese companies like Alibaba, Tencent and Xiaomi might not exist.
Most of the obvious tax benefits of looping investment through offshore vehicles have been cancelled.
But there are still some advantages.
Chinese companies that pay dividends to Hong Kong parent companies need only deduct 5 percent in withholding tax - half the level for many other countries.
Companies can also sell assets at the offshore level without paying capital gains tax, though local Chinese authorities have challenged that ruse in the last year.
It's hard to know where useful becomes excessive. Alibaba, the e-commerce company, has 16 subsidiaries in the Cayman and British Virgin Islands - and those are only the ones it deems “significant”.
Amazingly, companies like Alibaba claim their main entities are not Chinese for tax purposes, under the definition used by China's authorities.
Unravelling the whole structure would be overkill, and in any case is beyond China's means.
The damage to companies would be huge, and authorities may not be ready to unmask the elites who have used anonymous vehicles to hide their wealth.
Still, the tone is changing. It's clear that what used to be a help for the economy is fast becoming a headache. - Reuters