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Chinese Tax Reform and Risk Reduction of SME M&A

DOI: 10.4236/ajibm.2019.94070, PP. 1024-1032

Keywords: M&A China, Inbound M&A China, Tax Due Diligence China, Tax Risk China, Guanxi, SME China

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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.

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