Ren has always stressed in public that Huawei is a Chinese company, as can be seen from how much he pays taxes in China. In 2020, Huawei paid 101 billion yuan in taxes, almost double the tax paid by bat's "big three" combined.
As Chinese citizens and Chinese enterprises, paying taxes in their own country should be an obligation, why has it become a rare thing for many super-rich or giant enterprises with annual income of more than 100 million? How do they "reasonably" avoid taxes?
Benjamin Franklin, the founding father of the United States, once said that there are two things in a person's life that cannot be avoided, death and taxation. In the eyes of the rich, it seems that there is nothing that cannot be avoided except death. With the "live broadcast sister" Wei Ya was exposed to tax evasion some time ago, the amount of money that was recovered and fined was as high as 1.341 billion yuan, and was banned by the whole network.
The "live broadcast sister" tax evasion incident has brought the topic of "tax avoidance by the rich" back to the public's attention again.
First, the "tax haven" of China's Internet technology giants - the Cayman Islands
Previously, some experts analyzed the process of Via's "tax evasion incident". Via credits income that would otherwise be included in her personal tax payments to her "sole proprietorship.". A sole proprietorship is an enterprise that is independently invested by a natural person. Because there is no need to pay corporate income tax, there is no need to pay individual tax dividends. In terms of tax payment method, you can apply for approval and collection, and the comprehensive tax rate is less than 5%. For large amounts of money, you can save 40% of taxes, so Via will have 1 billion tax evasion and tax evasion.
However, sole proprietorships are only a small role in the "tax avoidance" approach. Many listed companies in the U.S. and Hong Kong stocks will register their companies overseas and then operate in China. The world's most famous tax haven registration is the Cayman Islands in the United Kingdom. According to public information, Alibaba, Tencent, Baidu, Lenovo, Xiaomi, JD.com, 360 and other companies are registered in the Cayman Islands. Why do a number of Internet technology giants who are fighting in the country have reached a wonderful coexistence in this small part of the Cayman Islands?
1. Perfect tax haven
The Cayman Islands is a British overseas territory located in the northwestern Caribbean Sea and is a world-renowned offshore financial center. Since 1978, royal decrees have exempted the Cayman Islands from tax liability. Therefore, the Cayman Islands do not tax individuals, businesses and trusts, and there is no corporate income tax, capital gains tax, property tax and inheritance tax on individuals in the Cayman Islands. For this reason, the Cayman Islands are also known as "tax havens".
2. Circumvent supervision
In China, the listing of enterprises is very strict in the control and review of the related relationships of shareholders, and after the company is registered in the Cayman Islands, the domestic company can be managed overseas through agreement acquisition or holding, and then go to Hong Kong or the United States for listing. This approach is called "VIE architecture" and also known as "protocol control". The VIE structure is that an offshore company can achieve control and financial consolidation of a domestic company without a direct equity relationship. In particular, companies with restrictions on foreign ownership ratios such as education, energy, and communications have higher efficiency and lower costs through VIE listings.
3. Good confidentiality
In order to compete with other offshore financial centres, the Cayman Islands also learned from Swiss bank secrecy. Information on the shareholders and directors of a company registered in the Cayman Islands may remain private. The relevant information of business operations is protected by local laws, and even trust companies cannot disclose them at will, otherwise they will be punished.
Moreover, the Cayman Islands has no foreign exchange restrictions, which is more flexible for enterprises to move funds in the course of business and is very attractive to enterprises seeking international development.
4. Convenient registration.
There is no restriction on the registered capital of the company in the Cayman Islands, usually 50,000 US dollars as the registered capital, and no capital verification is required. Except for special industries such as banking and insurance, which require application, there are no restrictions on other business scopes. Moreover, there is no nationality restriction on registering a company, and one person can set up a company.
For a long time, due to social stability, a large number of investment banks, accounting firms, law firms and other financial service institutions have gathered here, and many Chinese companies have come to the Cayman Islands to register companies, and the local government has even set up a "one-stop service" for Chinese enterprises.
Second, the "unsociable" Chinese technology giant - Huawei
The tax avoidance ability of companies registered in the Cayman Islands is evident from the comparison between Huawei and Tencent, which also started a business in Shenzhen. According to relevant data, in 2020, Huawei's annual revenue was 894.1 billion yuan, net profit was 64.6 billion yuan, and tax payment was 101 billion yuan. Tencent's revenue is 482.1 billion, net profit is 159.8 billion, and tax payment is only 19.9 billion. Why is Huawei's revenue nearly twice that of Tencent's, its net profit less than half that of Tencent, and its tax payments 5 times higher than Tencent's?
1. The place of registration is different
Huawei's registered office is Shenzhen, Guangdong Province, while Tencent's registration is in the Cayman Islands.
Tencent registers companies in offshore financial centers such as the Cayman Islands through the VIE structure, and only needs to pay a small management fee every year, which is negligible for companies like Tencent with hundreds of billions of revenues.
2. Different industries
Huawei is a manufacturing entity, with smart devices such as mobile phones, watches, tablets, and computers for end consumers, as well as communication base stations for operators. The manufacturing industry involves the transportation, production, manufacturing, packaging and other links of raw materials, which will generate a lot of costs.
Tencent mainly provides users with virtual value-added services for the network, or collects service fees as an Internet platform party. For example, Tencent collects membership fees through Channels such as King of Glory, Tencent Video, QQ Music, etc. These services are mainly the maintenance costs of pre-research and development and subsequent update iterations, and do not need to pay material costs as large as manufacturing.
3. R&D and talent investment are different
In terms of R&D investment, Huawei will spend about 10% of its revenue on research and development every year. In 2020, Huawei's R&D investment was 1418.93, compared with Tencent's R&D investment of only 389.72.
In addition, Huawei adopts the method of full shareholding to distribute corporate profits to employees. Moreover, Huawei has always insisted on recruiting global talents through high salaries, and this series of high salaries is also the reason why Huawei's cost is too high. In summary, this is why in terms of net profit margin, Huawei is only 7.23%, but Tencent can reach 33.15%.
III. Conclusion
Taxation is the main source of a country's fiscal revenue, and it is also an important means of regulating income disparity. Legally paying taxes is an obligation for Chinese citizens and Chinese enterprises. However, many enterprises hide profits and turn them into their own through various tax avoidance "routines", which will lead to incidents such as "Wei Ya was fined 1.341 billion yuan".
However, with the intensification of the regulatory crackdown on tax evasion, it will not only be manufacturing companies such as Huawei, Gree and Fuyao Glass that will support national taxation in the future, but also Internet giants such as Tencent, Baidu, and Alibaba will also become new "big taxpayers".