TITLE:
Chinese Tax Reform and Risk Reduction of SME M&A
AUTHORS:
Sven Ludwig, Lars Büttner
KEYWORDS:
M&A China, Inbound M&A China, Tax Due Diligence China, Tax Risk China, Guanxi, SME China
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.9 No.4,
April
28,
2019
ABSTRACT:
Although China has developed into one of the world’s leading economies, its inbound M&A market appears to be losing attractiveness. The number and volume of transactions have decreased for about a decade and multi-national corporations still note the difficult institutional framework leading to an uncertainty whether their investment will lead to economic success. A weak enforcement of law, widespread corruption as well as informal agreements between enterprises and authorities, often lead to business conditions that cannot be maintained by foreign investors post-acquisition. With the new tax-reform effective January 1, 2019, China, however, enables the taxation system to play a more supportive role in state governance. Thus, taxation & social insurance compliance is expected to improve which might influence the uncertainty and attractiveness of M&A investments in China as well. The paper at hand aims at summarizing the origin of tax-related risks in Chinese M&A-transactions as well as reflecting whether the recent tax reform will have an impact on the uncertainty of the investor.