13 October 2014

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Deloitte Touche Tohmatsu
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RE: OPEN LETTER TO DELOITTE TOUCHE TOHMATSU REGARDING TIANHE CHEMICALS GROUP LTD.
Dear Deloitte Touche Tohmatsu7
As 'ou are a&are7 &e ha8e /ublishe2 se8eral re/orts o! our &ebsite 2etaili!) e+te!si8e e8i2e!ce that su//orts
our 8ie& that Tianhe Chemicals Grou L!" 91:1-3(*; has e!)a)e2 i! #rau2 i! co!!ectio! &ith its I"O b' )rossl'
misre/rese!ti!) the si<e a!2 sco/e o# its busi!ess a!2 ma4i!) other misre/rese!tatio!s a!2 #alse stateme!ts to
the mar4et3
1
=e are &riti!) this o/e! letter to 'ou7 Deloitte Touche Tohmatsu7 the re/orti!) accou!ta!ts #or Tia!he>s I"O7 or
its a##iliate7 Deloitte Touche Tohmatsu 0erti#ie2 "ublic Accou!ta!ts LL"7 i! or2er to u!2erscore &hat &e belie8e
is e8i2e!ce that Tia!he co!ti!ues to ma4e #alse re/rese!tatio!s to the mar4et re)ar2i!) its busi!ess i!clu2i!)
re)ar2i!) its ta+es3 =e belie8e Tia!he is ma4i!) #alse re/rese!tatio!s a!2 /ro8i2i!) #alsi#ie2 2ocume!ts to 'ou7
its au2itors7 as /art o# its e##orts to obtai! 'our si)! o## o! its accou!ts7 a si)! o## that &e belie8e shoul2 be
/ro/erl' &ithhel27 base2 u/o! all o# the e8i2e!ce3
I! this letter7 &e u!2erscore some o# the /re8ious e8i2e!ce7 as &ell as some !e& e8i2e!ce that sho&s
co!clusi8el' that Tia!he has lie2 about the ta+es it has /ai27 a!2 that the ta+ co!#irmatio!s that it has
/rese!te2 to 'ou are either the result o# bribes or ha8e bee! #abricate23
1 htt/,//&&&3a!o!a!al'tics3com/2014/0-/tia!he?chemicals3html
1
I! res/o!se to our a!al'sis a!2 co!clusio!s co!tai!e2 i! our re/orts7 Tia!he@s Ma!a)eme!t team has release2
se8eral clari#icatio! a!!ou!ceme!ts 8ia the (o!) *o!) 5toc4 E+cha!)e3 =e belie8e that i! ma4i!) these
clari#icatio! a!!ou!ceme!ts7 Tia!he has ma2e stateme!ts that are co!tra2ictor' to /re8ious re/rese!tatio!s7
as &ell as to the Deloitte?au2ite2 5AI0 #ili!)s a!2 #i!a!cial stateme!ts7 a!2 that Tia!he has !o& bac4e2 itsel#
i!to a cor!er a!2 ca!!ot 4ee/ u/ &ith all the lies it is telli!)3
Let us e+/lai!,
I! its $ October clari#icatio! a!!ou!ceme!t7 Tia!he claime2 to ha8e obtai!e2 ta+ co!#irmatio!s #rom Liao!i!)
Yi 0ou!t' 5tate Ta+ Bureau a!2 u+i! 0it' (ai<hou District 5tate Ta+ Bureau co!#irmi!) that Tia!he /ai2 all its
ta+es 9AAT B I!come ta+es /ai2; co!siste!t &ith its I"O /ros/ectus3
I! ma4i!) its claim7 Tia!he /rese!te2 the #ollo&i!) ta+ brea42o&! b' its o!l' t&o o/erati!) subsi2iaries,
5ource, htt/,//&&&3h4e+!e&s3h4/liste2co/listco!e&s/5E(*/2014/100$/LTC2014100$12:33/2# /)3 $3
Base2 o! this ta+ brea42o&!7 it &oul2 a//ear that o! the o!e ha!2 u+i! (e!)to!) is barel' /ro#itable
9co!siste!t &ith our #i!2i!)s a!2 /rior assertio!s; &hile o! the other ha!2 .i!<hou D"?T( is i!cre2ibl'
/ro#itable 9i!co!siste!t &ith our #i!2i!)s;3
Accor2i!)l'7 it a//ears to us that Tia!he &as o!l' able to #abricate/bribe ta+ co!#irmatio!s #or Yi 0ou!t' 9&here
.i!<hou D"?T( is base2; a!2 !ot #rom u+i! 0it' 9&here u+i! (e!)to!) is base2;3
(o&e8er7 there are !hree /rimar' reaso!s to belie8e that the ta+ co!#irmatio! #rom .i!<hou D"?T( is #a4e,
2
#irs!$ a!2 most im/orta!t7 &e ha8e co!clusi8e e8i2e!ce that the ta+ co!#irmatio! obtai!e2 #or .i!<hou D"?T(
is #alse because the !umbers 2o !ot match the Deloitte?au2ite2 5AI0 #ili!)s3
Accor2i!) to the ta+ co!#irmatio! /rese!te2 b' Tia!he7 .i!<hou D"?T( /ai2 total ta+es o# 6MB45$ millio! i!
2011 a!2 6MBD$1 millio! i! 2012,
5ource, htt/,//&&&3h4e+!e&s3h4/liste2co/listco!e&s/5E(*/2014/100$/LTC2014100$12:33/2# Attachme!t 5
3
(o&e8er7 accor2i!) to the Deloitte?au2ite2 co!soli2ate2 a!2 sta!2alo!e cash #lo& stateme!t7 the amou!t o#
total ta+es /ai2 &as #ar less,
There is !o ambi)uit' that the li!e item @ @ &hich mea!s @all ta+es /ai2@ i!clu2es AAT7 i!come
ta+es7 a!2 all local ta+es3
2
There#ore7 accor2i!) to Deloitte7 .i!<hou D"?T( /ai2 total ta+es o# 6MB212 millio! i! 2011 a!2 6MB3-0
millio! i! 20123 Yet Tia!he>s !e&l' obtai!e2 Eta+ co!#irmatio!F claims that .i!<hou D"?T( /ai2 6MB45$
millio! i! 2011 a!2 6MBD$1 millio! i! 20123
This inconsis!enc% is all !he roo& %ou nee" !o see !ha! Tianhe is l%in' a'ain. The Deloi!!e(au"i!e" &inancial
s!a!emen!s inclu"in' !he a)o*e cash &lo+ s!a!emen! ro*e i! conclusi*el%.
9=e sus/ect &e alrea2' 4!o& ho& Tia!he &ill res/o!2 to this 2am!i!) 2iscre/a!c'7 a!2 &e ha8e /reem/te2
our res/o!se i! A//e!2i+ A3;
To be clear7 b' re#erri!) to the Deloitte?au2ite2 5AI0 2ocume!ts &e are !ot co!ce2i!) that the' are accurate3
I! #act7 &e belie8e Deloitte has bee! 2u/e2 i!to si)!i!) o## o! #a4e #i!a!cial i!#ormatio! as &e e+/lai!e2 i! our
2 5e/tember 2014 re/ort3
3
But rather7 &hat &e are sa'i!) is that Tia!he@s ma!a)eme!t team is so i!com/ete!t
at committi!) #rau27 that their #a4e ta+ co!#irmatio! is !ot e8e! co!siste!t &ith their #a4e Deloitte?au2ite2 5AI0
#ili!)s3
2 htt/,//&&&3chi!aacc3com/!e&/:35G:4-G/200-G$G12Gle00D5121$-00203shtml
3 htt/,//&&&3a!o!a!al'tics3com/2014/0-/tia!he?chemicals3html
4
Secon"$ &e !ote that the @i!come ta+@ !umbers #or .i!<hou D"?T( are all rou!2e2 !umbers7 but #or u+i!
(e!)to!) the' are all e+act !umbers 9re#er bac4 to /a)e 2;3 =e #i!2 it hi)hl' u!li4el' that a /ro#essio!al ta+
authorit' &oul2 issue a! o##icial ta+ co!#irmatio! usi!) rou!2e2 !umbers3 This is a )lari!) re2 #la)3
Thir"$ the ta+ co!#irmatio!s /rese!te2 b' Tia!he #or its .i!<hou D"?T( subsi2iar' 2o !ot match the ta+ re/orts
/re8iousl' /rese!te2 a!2 /ublishe2 b' the Yi 0ou!t' )o8er!me!t 9&here .i!<hou D"?T( is base2 a!2 /a's
ta+es;3 These 2iscre/a!cies are a!other )lari!) re2 #la)3
or e+am/le7 accor2i!) to a! o##icial a!!ou!ceme!t b' the .i!<hou )o8er!me!t7 the total ta+ bu2)et o# Yi
0ou!t' i! 2011 &as 6MB1-0 millio!7 a!2 b' 12 December7 20117 the 0ou!t' ha2 collecte2 6MB1D0 millio!3 Yet
Tia!he claims that .i!<hou D"?T( /ai2 6MB45$ millio! i! 2011,
5ource, htt/,//&&&3H<3)o83c!/l!H</2011/12/1:/1522303html
5
B' 30 .u!e 20127 Yi 0ou!t' 5tate Ta+ Bureau ha2 collecte2 all ta+ i!come o# 6MB14D millio!7 &hich &as 523D2I
o# the &hole 'ear@s /la!!e2 ta+ collectio!,
5ource, htt/,//&&&3l!3)o83c!/<#++/Js)2/'4sG1/'+/20120D/t20120D20G-1:0$13html
I! other &or2s7 2012@s e!tire /la!!e2 ta+ collectio! &as arou!2 6MB300 millio!3 Yet7 Tia!he@s clari#icatio!
a!!ou!ceme!t claims that .i!<hou D"?T( /ai2 6MBD$1 millio! i! ta+es i! 20123
4
That@s about 23: times the
total ta+ i!come o# the e!tire 0ou!t'K
I! Tia!he@s clari#icatio! a!!ou!ceme!t7 the' claim the' ha8e a22resse2 this 2iscre/a!c'7
5
but a care#ul rea2 o#
their actual a!!ou!ceme!t sho&s that the 0om/a!' com/letel' i)!ores it3
:
4 htt/,//&&&3h4e+!e&s3h4/liste2co/listco!e&s/5E(*/2014/100$/LTC2014100$12:33/2# /)3 $
5 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1010/LTN20141010007.pd p". 1
# http://www.hkexnews.hk/listedco/listconews/SEHK/2014/100$/LTN2014100$12#3.pd
#
As the au2itor that si)!e2 o## o! these #ili!)s7 &e res/ect#ull' su))est that 'ou co!si2er 'our /ositio! i! li)ht o#
these ob8ious 2iscre/a!cies3 =e reJuest that 'ou a!2 'our au2it teams care#ull' stu2' the issues &e ha8e
raise2 i! this letter a!2 i! our /re8ious re/orts a!2 be /re/are2 to ma4e the har2 2ecisio!s &e belie8e 'ou
must ma4e o! behal# o# i!8estors a!2 the i!te)rit' o# the )lobal ca/ital mar4ets3 I# &e are correct that Tia!he
is a #rau2 a!2 Deloitte #ails to i!#orm i!8estors a!2 re)ulators o# this ris47 Deloitte ma' also be hel2 liable i!
courts o# la& a!2 i! the court o# )lobal /ublic o/i!io! i! the e8e!t o# Deloitte>s #ailure3
You ma' co!tact us #or a22itio!al i!#ormatio! at this email, a!o!3a!al'tics1!eomailbo+3!et
5i!cerel'7
A!o!'mous A!al'tics

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Aen"i,: Tianhe-s Resonse !o our #irs! Poin!
=e sus/ect that Tia!he &ill res/o!2 b' claimi!) that AAT ta+es are !ot sho&! o! the i!come stateme!t3 This is
true7 but the' are clearl' sho&! o! the cash #lo& stateme!t7 a!2 this is a basic accou!ti!) /ri!ci/le e8er' e!tr'?
le8el accou!ta!t shoul2 4!o&7 i!clu2i!) the au2itors at Deloitte3
(o&e8er7 to 2ri8e home the /oi!t7 &e cite /a)es 44 a!2 45 o# the te+tboo4 title2 E0hie# Ta+ O##icerF /ublishe2
b' Tsi!)hua L!i8ersit' "ress i! 2005 a!2 authore2 b' (e Mhi2o!) 9I5BC D3020-$D007 -D$D3020-$D0:;,
This te+t clearl' e+/lai!s that Eall ta+esF i!clu2es AAT ta+es3 A seco!2 source o# i!#ormatio! is here,
htt/,//&&&3chi!aacc3com/!e&/:35G:4-G/200-G$G12Gle00D5121$-00203shtml
urthermore7 there are a!' !umber o# liste2 0hi!ese com/a!ies that /ro8i2e e+am/les o# this /ri!ci/le,
Ce& Material 9:00:3:,55; re/orts i!come stateme!t ta+es o# 6MB4$ millio! i! 2012 a!2 6MB33 millio! i!
20133 (o&e8er7 its cash #lo& stateme!t re/orts total ta+es /ai2 o# 6MB213 millio! i! 2012 a!2 6MB11$ millio!
i! 20133
$
*&eicho& Moutai 9:0051-,55; re/orts i!come stateme!t ta+es o# 6MB43D billio! i! 2012 a!2 6MB535 billio! i!
20133 (o&e8er7 its cash #lo& stateme!t re/orts total ta+es /ai2 o# 6MB1032 billio! i! 2012 a!2 6MB1235 billio!
i! 20133
Lubei 0hemical 9:00D2D,55; re/orts i!come stateme!t ta+es o# 6MB21 millio! i! 2012 a!2 6MB- millio! i!
20133 (o&e8er7 its cash #lo& stateme!t re/orts total ta+es /ai2 o# 6MBD: millio! i! 2012 a!2 6MB53 millio! i!
20133
As is /lai!l' ob8ious #rom the abo8e e+am/les a!2 te+tboo4 e+cer/ts7 all ta+es7 i!clu2i!) i!come ta+es7 AAT
ta+es7 a!2 local ta+es are re/rese!te2 i! the cash #lo& stateme!ts3
%