• • Option I – Spin-off Option II – Transfer assets to CM
III. Other Consideration IV. Appendix
பைடு நூலகம்
2
I. Our Understanding
SC Group is mainly engaged in manufacturing business and has several PRC entities in China. Currently, the Management would like to restructure its holding structure within the Group. The current holding structure can be depicted as follows:
Seller
Applicable rates for Customs Duty and 17% for Import Value Added Tax
Seller
Stamp Duty (“SD”)
0.03% or 0.05%
The contract sum of signed contracts for transferring inventory and other assets (including intangible assets)
The PRC tax implications on transfers of relevant assets are summarized as below:
Taxes Tax Rate Applicable Scope/Description Taxpayer
17%
The transfer amount of inventory, while the VAT can be credited by the buyer (if bonded can be exempt from VAT under bonded transfer)
Seller (creditable against output VAT)
2%
Seller (non-creditable against output VAT)
17%
Business Tax (“BT”)
Sales of second-hand fixed assets (purchased after 1 Jan. 2009)
BS
SCHK
BS
SCHK
20%
80%
MK
MK A
Hold: -Land use right -Trademark -Club Membership
MK B
- Keep existing operating business activities
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II. PRC Tax Implications - Option 1: Spin off (after the merger)
Appreciation amount on disposal of land use rights or property rights For disposal of the tax-exempted equipment under custom supervision, the dutiable price shall be calculated based on the residual period of custom supervision.
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II. PRC Tax Implications - Option 1: Spin off (after the merger)
After the merger, the new MK will be split into two companies with each company separately owned by different shareholders.
Transfer of intangible assets & Sales of properties
Seller (creditable against output VAT)
5% Gain from transfer of the assets, if any. If transferred at net book value, there would be no gain, but it will be subject to tax bureau's assessment on the arm's length basis for related party transactions.
Seller and Buyer
* All related party transactions should be conducted on an arm's length basis. Otherwise, the tax bureau is authorized to make adjustment.
3% (Applicable DT rate for Shenzhen) 30%-60%
The amount of transfer of land use rights or property rights
Buyer
Land Appreciation Tax (“LAT”) Re-evaluation of Customs Duty (“CD”) and Import Value Added Tax
Seller
Enterprise Income Tax (“EIT”)
25%
Seller
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II. PRC Tax Implications on the Merger Under Asset Transfers
Taxes Tax Rates Applicable Scope Taxpayer
Deed Tax (“DT”)
5
II. PRC Tax Implications – Merger
Fact: SCSZ merged into MK PRC Tax Implications: 1. SCSZ is required to pay back the exempted/reduced EIT for previous tax holidays as its operating period is less than 10 years The net operating loss (“NOL”) of SCSZ can be utilised by MK according to Caishui [2009] No.59. The estimated NOL to be utilized = Net fair asset value of SCSZ x Longest-term government bond yield rate of the current year end
MK A (creditable against output VAT)
2% VAT
Sales of second-hand fixed assets (purchased prior to 1 Jan. 2009)
MK A (non-creditable against output VAT)
2.
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II. PRC Tax Implications on the Merger Under Asset Transfers
Taxes Tax Rate Applicable Scope Taxpayer
17%
Value Added Tax (“VAT”)
The transfer amount of inventory, while the VAT can be credited by the buyer (if bonded can be exempt from VAT under bonded transfer ) Sales of second-hand fixed assets (purchased prior to 1 Jan. 2009)
The Group
SC Asia Limited (“SC Asia”)
100%
BS International Industrial Limited (“BS”)
100%
SC (South China) Limited (“SCHK”)
100%
MK Industrial (Shenzhen) Limited (“MK”)
SC Group PRC Tax Analysis on the Proposed M&A Project 23 November, 2010
Content
I.
II.
Our Understanding
PRC Tax Implications 1) Merger 2) After the merger
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II. PRC Tax Implications – Merger
The proposed restructuring plan can be depicted as follows:
SC Asia
SC Asia
SCHK
BS BS SCSZ 20% Merger New MK
SCHK 80%
MK
SC (Shenzhen) Co., Ltd (“SCSZ”)
3
I. Our Understanding
Based on the Management’s decision, SCSZ will be merged with MK in Shenzhen. Under the proposed merger, SCSZ will be merged into MK by way of absorption and MK will be the surviving entity. After completion of the merger, the Management will consider the following options: Option I: The surviving MK will be divided into two separate entities, namely MK A and MK B shortly after the merger. MK A will hold the land use right and buildings located in Shenzhen, relevant trademark and a Mission Hill Country Club Membership, while MK B will continue to conduct its intended business as before the spin-off. In this connection, the shareholder of MK B shall be changed from BS to another group related company, SCHK, and BS shall remain as the sole shareholder of MK A. Once the change of shareholding is completed, MK A will be sold to a third party through BS subsequently. Option II: The surviving MK will sell its trademark and a Mission Hill Country Club membership, and the land use right and building located at Shenzhen to a PRC subsidiary of CM separately without dividing into two separate entities after the completion of the merger.