Sino Grandness

[leeeta]

Is this the VAT surprise that Boon earlier was talking about?

That one sets up the plant and another operates? lol.. Perhaps, Sino's management is truly dumb.

[crubs]

Hi Young Investor,
 
Coming back to your question:
 
Can a project company transfer its input VAT to an operating subsidiary?
 
Get the operating subsidiary to procure the plant and equipment. The project company just do the building structure. There will be no transfer of input VAT involved.

The problem wouldn’t even exist in the first place, if procurement is probably structured, IMO.
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Sino Grandness has explained to shareholders before that local government will provide benefits (such as cheaper land, government grants) only if a local subsidiary is set up to pay local income tax on profits generated. 

Your suggestion will not work.

Hi Young Investor,

Oh I recalled them saying that too at one of the briefing. That might be why the group is structured as such. Thanks for bringing this up

[Boon]

Hi Young Investor,
 
Coming back to your question:
 
Can a project company transfer its input VAT to an operating subsidiary?
 
Get the operating subsidiary to procure the plant and equipment. The project company just do the building structure. There will be no transfer of input VAT involved.

The problem wouldn’t even exist in the first place, if procurement is probably structured, IMO.
________________________________________________________________________________________________________________________________________

Sino Grandness has explained to shareholders before that local government will provide benefits (such as cheaper land, government grants) only if a local subsidiary is set up to pay local income tax on profits generated. 

Your suggestion will not work.

Hi Young Investor,
 
By the way, how much grants have been received by Sino Grandness in relation to the amount of income tax it had paid so far totaling RMB 676 m from FY2009 to 9M2015?
 
Does it imply that if one is not prepared to accept the benefits (of cheap land and government grants) one does not have to set up a local subsidiary to pay local income tax? After all, branches are tax entities as well.
 
Is your statement “Your suggestion will not work.” applies to where Sino had set-up operations or are you saying it is not going to work in the whole of China?
 
Has the benefits (under current set-up of entities) justified the “amount of income tax paid” and “VAT cash flow strain suffered” by Sino Grandness so far?
 
From the perspective of cash flow beneficiary, the China tax authorities seem to be the winner and the shareholders of Sino Grandness the loser. This is not a win-win deal, is it? 

When and where was this being explained and has it been recorded or published ?    
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[Young Investor]

Mr Boon,

You can attended the AGM to get the answers.

Tax experts advise on the setting up of subsidiaries.

You seem to suggest that Sino Grandness management is dumb and is incapable of assessing benefit.

Sino has told shareholders that setting up local subsidiaries in China is common.

[tiongkokgor]

Hi BoonHi Young Investor,
 
Coming back to your question:
 
Can a project company transfer its input VAT to an operating subsidiary?
 
Get the operating subsidiary to procure the plant and equipment. The project company just do the building structure. There will be no transfer of input VAT involved.

The problem wouldn’t even exist in the first place, if procurement is probably structured, IMO.
________________________________________________________________________________________________________________________________________

Sino Grandness has explained to shareholders before that local government will provide benefits (such as cheaper land, government grants) only if a local subsidiary is set up to pay local income tax on profits generated. 

Your suggestion will not work.

Hi Young Investor,
 
By the way, how much grants have been received by Sino Grandness in relation to the amount of income tax it had paid so far totaling RMB 676 m from FY2009 to 9M2015?
 
Does it imply that if one is not prepared to accept the benefits (of cheap land and government grants) one does not have to set up a local subsidiary to pay local income tax? After all, branches are tax entities as well.
 
Is your statement “Your suggestion will not work.” applies to where Sino had set-up operations or are you saying it is not going to work in the whole of China?
 
Has the benefits (under current set-up of entities) justified the “amount of income tax paid” and “VAT cash flow strain suffered” by Sino Grandness so far?
 
From the perspective of cash flow beneficiary, the China tax authorities seem to be the winner and the shareholders of Sino Grandness the loser. This is not a win-win deal, is it? 

When and where was this being explained and has it been recorded or published ?    
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[CityFarmer]

I read two perspectives here.

One perspective, is "why?", and trying to make sense of the structure, cash flow etc. The tax system in China, is vastly more complex than Singapore one. To get the answers, aren't easy.

The other perspective, is "why not since we are official told so?". Generally, the arguments were, mainly based on "told by management". I hope I read it right.

Regards
Cityfarmer

[Boon]

Hi BoonHi Young Investor,
 
Coming back to your question:
 
Can a project company transfer its input VAT to an operating subsidiary?
 
Get the operating subsidiary to procure the plant and equipment. The project company just do the building structure. There will be no transfer of input VAT involved.

The problem wouldn’t even exist in the first place, if procurement is probably structured, IMO.
________________________________________________________________________________________________________________________________________

Sino Grandness has explained to shareholders before that local government will provide benefits (such as cheaper land, government grants) only if a local subsidiary is set up to pay local income tax on profits generated. 

Your suggestion will not work.

Hi Young Investor,
 
By the way, how much grants have been received by Sino Grandness in relation to the amount of income tax it had paid so far totaling RMB 676 m from FY2009 to 9M2015?
 
Does it imply that if one is not prepared to accept the benefits (of cheap land and government grants) one does not have to set up a local subsidiary to pay local income tax? After all, branches are tax entities as well.
 
Is your statement “Your suggestion will not work.” applies to where Sino had set-up operations or are you saying it is not going to work in the whole of China?
 
Has the benefits (under current set-up of entities) justified the “amount of income tax paid” and “VAT cash flow strain suffered” by Sino Grandness so far?
 
From the perspective of cash flow beneficiary, the China tax authorities seem to be the winner and the shareholders of Sino Grandness the loser. This is not a win-win deal, is it? 

When and where was this being explained and has it been recorded or published ?    
_____________________________________________________________________________________________________________________________________

Hi Tiongkokgor,
 
It is good to hear from another advocate of serious research and thanks for your interesting comments.
 
Unfortunately, I find your comments lacking in specifics and therefore it would be very much appreciated if you could:
 
1)  Clarify if you are saying or implying that I have make mistakes in interpreting Chinese tax rule based on my understanding of Singapore tax rule?
2)  Can you please quote a question which I have posted that had caused you most fear – what were you fearing for ? And what subsequent answer provided by other buddies that helped nullified your fear?   
 
Thanks.
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[leeeta]

Hi Boon

Can you explain how your proposal work by taking the following scenario.

When the Hubei beverage factory was being built, there was only one beverage factory in Sichuan in operation.

[crubs]

Hi Boon,

Just to be clear, can you clarify your stance on 

1) Companies in China incorporating local subsidiaries for factories. Is it a net positive or negative ? What are some of the factors you considered ?

2) Specifically for Sino Grandness, do you think their group structure is appropriate, all things considered ?

[Boon]

Hi Young Investor,
 
I will come back to you on the issue of “dumb and incapable of assessing benefits” later.
 
Hi leeta,
Your latest question is related to that of “crubs”.
 
Hi crubs,
 
What we have are the consolidated financial statements of the group. Without the financial statement of individual subsidiaries, it would hard to make a more meaningful assessment.
 
Also I noticed that there is subsidiary (Shenzhen Grandness Industry People’s – Groups Co., Ltd.) that specialize in sales. I do not know how marketing costs are allocated among the subsidiaries.
 
Broadly, here are some of the major factors to consider.
 
Business structure
Legal risks
Tax obligations and implications
Tax planning
Operating risks
Registered capital requirement
Capital structure
Source of capital – SAFE registration
Thin capitalization.
Losses carried forward
PPE depreciation profile – building vs machinery
Leasing alternative.
Profit repatriation
Withholding tax
Dividend policy – source of profit
Exit strategy –
Operating efficiency
Inter-relationship between various taxes.
Government incentives
 
A simple example of income tax saving achievable during construction/ development phase is to outsource development activities to an overseas related party (say in Hong Kong). The Hong Kong entity would be subject to HK tax rate at 16.5% percent, which may be more 
than offset by the Enterprise Income Tax (EIT) benefits of incurring the costs by the subsidiary itself (at 25 %).
 
I don’t know if outsourcing of marketing activities fall under such scheme for Sino. It used to work for of real estate developers.
 
There could be other possibilities to be exploited depending on the objective or target.


One extreme is to structure them into functional groups:
 
Development management service
Building structure
Plant and machinery
Production
Distribution/transportation
Marketing
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