Share

China to score Alibaba jackpot

Hong Kong - China could make billions of dollars from taxing gains made by employees of e-commerce giant Alibaba Group who are free to sell their shares for the first time since its IPO, as the country tightens up its leaky mechanisms for tax collection.

On Wednesday, a six-month lock-up period for the recently New York-listed stock expired, allowing insiders who bought 437 million shares prior to the IPO to sell their stock, though 100 million of them are subject to trading restrictions that apply to employees until the company reports results in May.

The total lock-up represents roughly 18% of Alibaba's shares, which if sold would fetch just over $37bn at Friday's closing price.

Although Alibaba did not disclose the identity of the shareholders subject to the lock-up, many will be taxable in China, where most of its 22 000 people are employed, and its share scheme is subject to a number of controls that will help ensure China gets its tax.

Current and former employees hold around 26.7% of the company, having built up holdings through stock options and other incentives since 1999, according to a Reuters report from June using IPO securities filings.

Offshore trusts

Those subject to the expiring lock-up will have obtained their shares at different times and costs, so the gains figure is unknown, but the tax is expected to reach billions of dollars for China's State Administration of Taxation (SAT).

While tax on employee compensation is withheld by employers, tax on share sales must be declared by employees, meaning it's typically harder for the authorities to track.

It is not uncommon for employees participating in Chinese company stock incentive schemes to transfer their shares to offshore trusts in the Cayman or British Virgin Islands to avoid tax, according to a person who helps create such structures.

But Alibaba's newly minted millionaires won't escape the gaze of the tax inspector, said a Beijing-based accountant.

"Because it was such a large IPO, the tax bureau will for sure be monitoring that."

Jacky Chu, a partner in the China tax practice at PwC, said the SAT was very familiar with this kind of stock option arrangement and would be poised to act.

"The tax officials are smart enough to know that there should be money coming in, and over the last few years the SAT has been targeting equity income," he said.

A spokesperson for Alibaba said employees were responsible for reporting share sale gains to the tax authorities, but the company had registered its stock incentive plan with the State Administration of Foreign Exchange (Safe), which controls how much money goes in and out of China.

It added that Alibaba "withholds capital gain tax from proceeds of share sales that can be repatriated back to China" through a channel stipulated by Safe.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.2%
Rand - Pound
23.91
-0.1%
Rand - Euro
20.43
+0.2%
Rand - Aus dollar
12.34
+0.1%
Rand - Yen
0.13
-0.2%
Platinum
910.50
+1.5%
Palladium
1,011.50
+1.0%
Gold
2,221.35
+1.2%
Silver
24.87
+0.9%
Brent Crude
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders