Backdating Taxes?
Investors no longer have to be worried about double taxation on China-based funds. On Mar. 4, the Korea Financial Investment Association told asset management firms to hand in documents for double tax avoidance agreement applications.
Four months ago, when the Chinese government connected the Shanghai and Hong Kong stock markets to each other, it said it would impose taxes on the past capital gains taken by foreign investors in China. Concerns rose over double taxation in China and Korea, and Korean investors were predicted to be affected, although taxation is rarely subject to backdating according to international practices.
However, in December of last year, Deputy Director General of the Fund Department of the China Securities Regulatory Commission Qi Bin clarified that the issue of taxation on Korean investors’ investment in China-based funds would be in compliance with the relevant agreement. Specifically, according to the double tax avoidance agreement between Korea and China, the capital gains taken by Korean QFIIs in China are subject to taxation in Korea alone. In addition, the Chinese tax authorities recently confirmed that China has no rights to deduct withholding taxes from such China-based funds.
Under the circumstances, some asset management firms are pondering how to distribute the allowances they reserved for the potential taxation. For example, Shinhan BNP Paribas, Hana UBS, JP Morgan Asset Management and others set aside 5 to 8 percent of their net assets for the purpose.