Around the World with Seymour Mansfield
Legal News with an International Perspective
By Seymour J. Mansfield and Hao Wang
Hao Wang on Legal Developments in China
As part of Mansfield Tanick & Cohen's continued efforts to bring awareness of the legal issues in one of the world's fastest growing markets, namely China, I am pleased this month to introduce you to my good friend, Hao Wang, of the RayYin Firm located in Beijing. Ms. Wang and her firm are members of Lawyers Associated Worldwide (LAW), the international organization of attorneys and law firms of which Mansfield Tanick & Cohen is also a member. The attorneys of LAW such as Ms. Wang are a key component to Mansfield Tanick & Cohen's global presence and our affiliation with these fine firms allows us to provide a seamless connection for Minnesota businesses needing local counsel in another state or country.
Ms. Wang is the founding partner and managing partner of RayYin & Partners P.R.C Lawyers. She specializes in foreign investment, trusts, merger and acquisition, financial market and corporate. After the promulgation of Chinese Trust Law in 2001, Ms. Wang was one of the first Chinese attorneys to assist clients to design commercial trust structures. While following Professor David Hayton and Paul Matthews in London, she researched the uses of trusts in financial market. Ms. Wang has advised many prominent international clients in designing their business structure and setting up their operations in China. She helped them from drafting agreements to negotiation. Ms. Wang has also provided the legal services in sales of equity, dissolution and liquidation of businesses, labor relations, foreign exchanges and taxation matters. Ms. Wang also has experience in corporate acquisition and overseas public offerings of foreign companies with Chinese domestic interest. Ms. Wang has built a solid practice expertise in banking business including commercial lending, fund management, foreign exchanges management, secured transactions, financial leasing, etc.
It is my pleasure to feature Hao's work in this edition of Around the World, and I look forward to working with her and her firm more frequently as part of our firm's China-U.S. LAW Connections program.
Seymour J. Mansfield is a founding shareholder of Mansfield Tanick & Cohen, P.A. His practice includes complex and class action litigation (including antitrust and consumer protection cases). Mr. Mansfield is the firm's primary representative for Lawyers Associated Worldwide (LAW), an association of independent law firms located in over 100 major commercial centers throughout the world. Membership in LAW allows member firms to service the legal needs of clients that are expanding their operations and relationships into new domestic and foreign markets because of the increasing globalization of the business world. Mr. Mansfield served on LAW's Executive Committee (governing board) from 2004 through 2008. He can be reached at 612-339-4295 or via email at smansfield@mansfieldtanick.com.
Legal Developments in China
Hao Wang, RayYin & Partners, P.R.C. Lawyers
China Cuts Taxes to Restore Market Confidence
To counter the ill effects of the international financial crisis and to stimulate the domestic real estate market, the Ministry of Finance, State Administration of Tax and the People's Bank of China have jointly approved a series of preferential tax-reduction policies.
1) Deed taxes for first-time, ordinary-residential housing purchases of less than 90 square meters have been cut to one percent. Prior to this rate cut, the deed tax rate had been between three percent and five percent of a home's price, but the government's Announcement on Adjusting Real Estate Transaction Tax by Ministry of Finance and State Administration of Taxation reduced the deed tax rate for first-time ordinary residential housing purchases to one percent, effective November 1, 2008.
2) Stamp tax is no longer levied for individual housing transactions. With the Announcement on Adjusting Real Estate Transaction Tax by Ministry of Finance and State Administration of Tax, the stamp tax is no longer levied for individual housing transactions, a savings of one percent for buyers and sellers.
3) Land VAT is no longer levied. In accordance with the Announcement on Adjusting Real Estate Transaction Tax by Ministry of Finance and State Administration of Taxation, the land VAT will no longer be levied for individual non-ordinary residential housing transactions, saving home buyers a one percent tax payment.
4) Lowest advanced payment ratio reduced to 20 percent, lowest loan interest rate reduced to 70 percent of the benchmark interest rate. Under the previous policy, purchasers of residential housing of less than 90 square meters were required to make a 20 percent down payment. Buyers of flats larger than 90 square meters were required to pay 30 percent down, and the loan interest rate level was 85 percent of the benchmark interest level. Since banks have been given much more leeway in implementing the new policy, the detailed implementation rules shall enter into force after being finally agreed to by commercial banks.
5) Benchmark interest rate, provident fund loan interest rates reduced by 0.27 percent. The People's Bank of China lowered the individual provident fund loan interest rate by 0.27 percent on October 27, 2008.
6) Local governments may provide incentives for encouraging local property consumption. The Ministry of Finance will also allow local governments to offer incentives to spur local property transactions. This transfer of authority from the central government to local governments is meant to encourage and affirm local market-stimulation policies, thereby avoiding the "one size fits all" application of rule-making to the diverse regions of China. This has led some to believe that even more favorable taxes and fees may be applied by local governments overseeing real estate transactions.
Government approval may be required for mass lay-offs
Companies throughout China may soon have to apply for an approval from the government for mass lay-offs. The minimum wage could also be decreased in order to prevent rising unemployment and social instability.
In accordance with PRC Employment Contract Law, which came into force on January 1, 2008, if an employer, under a certain circumstance, needs to carry out a personnel cutback involving at least 20 persons or a personnel cutback involving less than 20 persons but accounting for at least 10 percent of the enterprise's workforce, it may do so after explaining the circumstances to the labor union or all of the staff and workers 30 days in advance, listening to the opinions of the labor union or staff and workers and reporting its personnel cutback plan to the labor administrative department. But recently, authorities in charge of labor in Shandong and Hubei provinces have revised their implementing rules, making it compulsory for companies to get an approval for lay-offs of more than 40 employees. After Shandong and Hubei changed their rules, the related authorities in Beijing also announced similar approval requirements for locally-based enterprises wanting to let more than 80 percent of their employment contracts expire without renewal. Shanghai is also said to be considering imposing approval requirements.
The local response is in line with a notice reportedly circulated by the Ministry of Labor and Social Security on November 17 advising state-owned enterprises to keep lay-offs as low as possible. Unlike the national notice, the emerging local approval requirements appear also to apply to foreign-invested companies and other private enterprises.
China Imposes Tax on Money from trade in Virtual Currency
The State Administration of Taxation in PRC announced in September that income from the sale of virtual currency with "increased value" shall be taxable. The individual income from the difference between purchasing the virtual currency and then selling it to others shall be taxable at the same rate applied to real estate and other transactions. The original price for the individual to sell the virtual currency shall be the payment for purchasing the virtual currency on line and relevant charges. The authority in charge of tax shall ratify the original price if the individual fails to present related certificate of the original price. However in the announcement there is no provision how to ratify the original price. Tax authorities generally take the view that all income from online business should be taxable, even if profits are derived from virtual worlds.
Different from the notice issued by fourteen authorities including PRC State administration of industry and commerce, PRC Ministry of Public Security, PRC Ministry of Finance, etc. in which prohibits the individual from purchasing and selling the virtual currency on line in 2007. However it is not optimistic for the rules from the tax authority to be implemented. The conflicting rules from different authorities in PRC indicate all the countries in the world are facing the difficulty how to manage and impose the tax on the business on line.
M&A after China Monopoly Law Effected
The first published ruling by China's new antitrust regime has sparked fears that authorities could use the laws to shield domestic industry from foreign competition. In November 2008 China's Ministry of Commerce waved through InBev's $52 billion acquisition of Anheuser-Busch on the grounds that it would not adversely affect competition in the domestic beer market.
There are some famous beer trademarks in China such as Tsingtao Brewery, Zhujiang Brewery, China Resources Snow and Beijing Yanjing involving in the acquisition. It is the first publication of a merger decision since PRC anti-monopoly laws took effect in August 2008. By imposing future conditions such as restricting the proportion of equity, reporting to China's Ministry of Commerce if the changes of the controlling shareholder or shareholders of the controlling shareholder on a deal that did not harm competition, China's Ministry of Commerce had broken new ground in international antitrust decision-making. In the decision, China's Ministry of Commerce banned InBev from acquiring shares in two other major domestic breweries, China Resources Snow and Beijing Yanjing. InBev will also have to inform China's Ministry of Commerce "in a timely manner" of any changes to its controlling shareholders.
It is likely to alter the approach of many overseas companies towards mergers and acquisitions in China. And as a result of the InBev ruling, company executives considering M&A will now have to take into account the risk that a Chinese antitrust ruling on one transaction can impose restrictions on their ability to do future deals on the mainland.
