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The Tax Implications of Mergers and Acquisitions and Corporate Restructuring in China

Undertaking investment activities in the Chinese market through mergers and acquisitions (M&A) or corporate restructuring may raise issues of tax anti avoidance, which could be sceptically and stringently viewed by the Chinese tax authorities, who have recently formulated new regulations to tackle such attempts to avoid taxes. Investors intending to acquire shares of Chinese enterprises or to enter into joint ventures with them need to not only concern themselves with operational strategies but also to design their investment portfolios and structure their corporate frameworks to achieve tax-planning efficacy. This article uses two recent cases to illustrate a few major Chinese tax issues from an anti-avoidance perspective. It aims to remind foreign investors of the potential tax risks when they enter the Chinese market through the different approaches of M&A or corporate restructuring.