Here a typical scenario: Investors want a Chinese company to list overseas, so they set up a special-purpose vehicle (SPV) in an offshore location, and restructure the firm domestic operations into a wholly foreign-owned enterprise in which the SPV has a majority stake.
Profits are paid to the SPV through dividends issued in the local currency of the offshore location. Under local regulations this income is untaxed. If and when the company does a share offering, the listed entity is the SPV. This means any early backers of the company who now want to exit are able to realize their investments in a fully convertible currency.
However, the Chinese taxation authorities are increasingly aware of the exemption benefits rendered by those renowned offshore jurisdictions and beginning to tackle toughly against Cayman-incorporated companies with major domestic primary commercial presence. Gone are days when a blue-uniformed Chinese tax cadre leniently approved of most deduction applications by the financial executives of Sino-Caymanian companies. With the wistful reminiscence of the old good days in mind, innovative human brains are breeding fresh ideas in response to the undesired change. To win the race against the Middle Kingdom updated taxation codes and enlightened taxmen, more sophisticated tax planning is needed to keep your income intact and in the meantime staying within the boundary of the Chinese law
