Tycoons shield wealth amid tax cuts for masses

Top News | BLOOMBERG 17 Jan 2019

Four Chinese tycoons transferred more than US$17 billion (HK132.6 billion) of their wealth into family trusts late last year, underscoring how the rich are scrambling to protect their fortunes from the nation's newly toughened tax regime.

The latest example came from billionaire Sun Hongbin, chairman of real-estate developer Sunac China, who disclosed in a filing in Hong Kong last week that he shifted most of his stake in the company to South Dakota Trust on December 31.

Longfor Group chairwoman Wu Yajun, one of China's richest women, made a similar move in recent weeks, as did the wealthy magnates behind food distributors Dali Foods and Zhou Hei Ya International.

Three of the four Hong Kong-listed companies cited succession planning as the purpose of the transfers. The ownership structures of all four tycoons involve entities in the British Virgin Islands.

The moves come as China's super rich brace for the possibility of the government going after the wealthy to push through tax cuts for the masses.

Personal wealth ballooned to an estimated US$24 trillion last year, making the rich ripe for further scrutiny from tax collectors and prompting many families to seek refuge via shields such as trusts.

"Offshore trusts may not avoid taxes entirely, but they may to some extent win more tax deferral space for billionaires," said Oscar Liu, chief executive officer at Noah International, an asset-management service provider. Still, China's new tax law does not spell out clearly whether offshore trust assets are taxable, Liu said.

The duties on the wealthy are part of a broader overhaul of China's tax system. The country is increasingly turning to tax cuts as the first line of defense against a slowing economy. JPMorgan economists estimate the total impact will be around 2 trillion yuan (HK$2.32 trillion), or 1.2 percent of gross domestic product.

The change of approach is being driven largely by China's huge debt load, which makes funding a splurge on bridges and railways - like that following the 2008 financial crisis - dangerous for financial stability.

The latest wealth transfer, made by Sun on New Year's Eve, was for US$4.5 billion. In 2017, his fortune more than tripled, the latest twist in a career that has involved a stint in jail and the forced sale of a developer he once predicted to become the nation's largest.

Sun and his family are beneficiaries of the trust. His son, Kevin Zheyi Sun, was appointed as a Sunac executive director in May 2017. He was 27 at the time.

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