By Tan haojun in Global Times, Aug 16, 2017 at 20:43:39
The author is a financial commentator from Zhenjiang, East China’s Jiangsu Province.
According to China Merchants Bank and Bain & Company, a global business consulting firm, nearly 60 percent of China’s high net worth individuals have assets overseas in 2017, while in 2011 this ratio was only 20 percent. In 2015 and 2016, China’s annual financial assets exported overseas amounted to more than 1 trillion yuan ($150 billion).
Tax havens like the British Virgin Islands, Cayman Islands and Bermuda have become key areas for the rich to transfer their assets and avoid tax. It has been reported that just in the Virgin Islands, which is only a small dot on the map, around 200,000 Chinese companies have transferred assets there to avoid tax. Tax avoidance might seem understandable, but the transfer of property and a loss of China’s wealth is a source of concern.
Countries all over the world have been trying to curb these activities. By June 30, 101 countries and regions had promised to implement the Common Reporting Standard (CRS), an agreement approved by the OECD Council in 2014. According to the OECD’s website, the CRS calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions. Efforts have been made to combat the establishment of shell companies, illegal holdings, false trade and other means to evade tax. The review of financial accounts opened abroad will be the basis and prerequisite for the efforts.
Countries need to effectively protect public wealth and the rich should not be able simply to transfer assets to other countries. Such transfers of property result not only in loss of public wealth, but also damage to a country’s image and confidence. Rich people should be focused on creating more wealth for their home countries and people.
Obviously, there have been abuses and asset transfers in recent years. Otherwise, why would there be so many shell companies in the Virgin Islands? Is it only because of the low tax burden? Should not the tax burden be linked with production and operation? It is obviously unreasonable. There are clearly loopholes that leave space for wealth transfer, resulting in massive loss of social wealth.
In the early stages of its reform and opening up, China faced a situation in which both the raw materials of production and the target sales market were often abroad. This “double outside” situation meant less profit and cheap labor, which was already a problem. But transfer of assets, which is actually transferral of wealth created by the Chinese people through their hard work, is a completely different thing. The former is passive and helpless, while the latter is active and premeditated. Therefore, we must take strong measures to solve the problem of tax avoidance.
Most countries have taken steps to crack down on such activities. However, some companies are still taking advantage of loopholes in global governance to set up shell companies in tax havens. This makes it hard for governments to solve the problem.
For this reason, it is necessary to deal with these loopholes through global cooperation and consensus. China reportedly will exchange the required information with tax authorities in other countries and regions in September 2018 for the first time. In other words, the financial account information of China’s residents in the majority of overseas countries will be sent back home. Once the information has been sent, it will be easy to see if there has been a transfer of assets. If abuses are found, the government will deal with it and will combat tax evasion based on the laws and regulations. It should be noted that normal foreign investment is still vigorously advocated at the national level. But transfer of assets and wealth merely in the name of foreign investment should not be allowed. http://www.globaltimes.cn/content/1061670.shtml
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