Tax Planning for Corporate in Asia January 12, 2019

Effective Tax Rate (ETR) Shareholding structure Supply chain and transfer pricing

Which is Hong Kong’s tax rate? 15% B. 8.25% C. 16.5% D. 7.5%

Headline tax rate Effective tax rate Applicable tax rate Which one is more important? 1-> 2 tax planning 2-> 3 tax planning

Headline tax rate HK applicable tax rate China applicable tax rate China got 5% rate? No. WHT

Effective Tax Rate (ETR) Mainland China Company A Company B Company C Profit before tax a 1,000 Income tax b (400) (100) ETR c = - b/a 40% 10% (10%) 1,000 (1,000) 100 (100) Hong Kong Company D Company E Profit before tax a Income tax b ETR c = - b/a 0% 12% Total (1,200) 2,000 800 (240) “Total”- ETR closely link to CMA work 30% Base Erosion and Profit Shifting (BEPS) / Country-by-country reporting (CBCR)

Tax loss transfer and tax consolidation South Korea Malaysia Japan Singapore Taiwan*

Effective Tax Rate (ETR) Shareholding structure Supply chain and transfer pricing

Shareholding structure US Parent Co. Hong Kong Singapore WHT locally when sending dividend to US - WHT in Indonesia when sending dividend to Hold Co 5% 10% Hold Co? Local tax when receiving dividend from Indonesia - Indonesia Dividend WHT to overseas in domestic law 20% Dividend WHT to US 10%

15% (no US Singapore tax treaty) Shareholder’s loan – thin capitalization US Parent Co. Hong Kong Singapore WHT locally when sending interest to US - 15% (no US Singapore tax treaty) WHT in Indonesia when sending interest to overseas lender 10% ? Local tax when receiving interest income from Indonesia - - (note) Indonesia Interest WHT to overseas in domestic law 20% Interest WHT to US10% Note: in this case, Singapore incurs interest expense in relation to receiving interest income. Thus the taxable profit at 17% income tax rate is usually less than the withholding tax suffered in Indonesia (i.e. 10% of Singapore of interest income). Therefore, there is no additional Singapore tax imposed.

Effective Tax Rate (ETR) Shareholding structure Supply chain and transfer pricing

US Group and its China manufacturing sub materials goods US China sub materials goods US Vietnam factory China sub 0% customs duty possible due to temporary import (60+30 days) or FTA 0% customs duty possible due to ASEAN-China FTA (40% local value) 12

Transfer pricing materials $? goods US China sub $? $? materials goods Vietnam sub China sub 0% customs duty possible due to temporary import (60+30 days) or FTA 0% customs duty possible due to ASEAN-China FTA (40% local value) 13

Q & A