Extracts from: Why do so many Chinese companies use the British Virgin Islands (BVI)?

By Nicholas Shaxson  – author of Treasure Islands, a book about tax havens. He writes for the Tax Justice Network [TJN].

Article source: http://treasureislands.org/why-chinese-companies-flock-to-the-bvi/

Naomi Rovnick of the South China Morning Post published an excellent article in 2011 looking at the use by Chinese companies of British Virgin Islands (BVI) vehicles

She reported that ten percent of all “foreign” investment into China comes from the BVI, in fact – and growing explosively. Why so? Well, the reporter met quite a lot of obfuscation. The lawyers didn’t want to tell her; one Scottish corporate lawyer merely said ‘ask the Chinese clients’. But she extracted this telling quote from U.S. lawyer Steve Dickinson, which says it all!

“The reason for this strong link between China and the BVI is a very simple form of tax avoidance. If you take the money straight back into China you pay capital gains [or income] tax. If you leave it in the BVI, wait a while then send it back, it can be made to look to the authorities like it is a foreign investment, and you don’t pay tax on that.”

Mr Dickenson failed unfortunately to distinguish between “tax avoidance – which by definition involves getting around the law without actually breaking it, and tax evasion, which is a criminal activity. What he was is in fact talking about is Chinese interests pretending to be foreign – essentially escaping tax, illegally, through offshore deception. This is illegal. It is tax evasion.

Chinese interests pretending to be foreign – essentially escaping tax, illegally, through offshore deception. This is illegal. It is tax evasion. [Read more…]