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31 August 2016
Oliver is a tax partner leading PwCs North China Financial Services Tax
Practice in Beijing.
Oliver has 16 years of experience in the management industry. He has
advised a number of PE/VC and hedge fund clients on their
onshore/offshore fund structuring and carried interest planning. He has
also advised a number of local mutual fund management companies on
their QDII/ETF products and offshore fund structures managed by Hong
Kong subsidiaries. Oliver has also assisted foreign managers in acquiring
Chinese non-performing loans and assisted Chinese securities houses in
issuing domestic REITs-like products.
Oliver is a regular speaker at tax seminars and forums. He contributes
Oliver Kang
ideas to government officials and industry associations on tax policies,
Lead Tax Partner , North China financial products innovation relating to the asset management industry.
Financial Services Tax Practice
PwC Beijing Oliver is a member of China Institute of Certified Public Accountants (CICPA).
+86 (10) 6533 3012
+86 186 1849 8190
oliver.j.kang@cn.pwc.com
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Frank is the deputy chief accountant of PwC and an Assurance Partner.
Frank has been with PwC Shanghai and US Boston for 17 years and mainly
serves financial services clients, accumulating experience in the asset
management industry for more than 15 years.
Franks major clients include more than 70 QFII /RQFII/QFLP/QDLP
portfolios; around 10 WOFEs/representative offices of foreign asset
managers, more than 30 fund management companies and securities
investment funds under management; more than 20 PE/VC fund groups,
hedge fund groups, and insurance asset managers. He provides services
ranging from statutory audit, special purpose audit, capital verification
and internal control policy and procedure review, ISAE 3402 audit as well
Frank Shan as GIPS verification. He has extensive experience in the areas of financial
Financial Services Practice accounting and reporting as well as internal control for various players in
Partner Chinas financial service industry, especially in asset management industry.
PricewaterhouseCoopers
Zhong Tian CPAs LLP During his time with PwC US Boston office from 2006 to 2007, Frank
Deputy Chief Accountant specialised in the provision of various services to regulated investment
+86 (21) 2323 3487 funds, which included financial statements purpose audit and regulatory
+86 137 6166 6081 purpose audit. He was also involved in SAS70 audits for the bank custody
frank.shan@cn.pwc.com
services and investment management industries.
Frank graduated from Shanghai Jiao Tong University. He is qualified as a
Certified Public Accountant of China and is a CFA charter holder. He is an
active membership in the CFA China Society.
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Content
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Highlights of the new rule
PwC
Background
In the 8th Round of the China-US Strategic and Economic Dialogue, China expressed
that it welcomes qualified WFOE or JV to apply for private securities fund management
On 30 June 2016, the CSRC speaker confirmed that WFOE or JV managers can
register with the Asset Management Association of China (AMAC) and carry on private
securities fund management activities following this
AMAC issued its 10th FAQ Regarding Registration and Recording-filing of Private
Funds on the same day, clarifying the detailed requirements for the registration of
private securities fund managers where they are foreign invested WFOE or JV
managers
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Key principles to follow
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Who can register with AMAC?
Incorporated in China
The foreign shareholder is a financial institution licensed in the jurisdiction that has
signed a MOU with the CSRC
Not subject to severe sanctions
Where managers have de facto foreign controlling persons, such persons should meet
the above 3 conditions
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How to register with AMAC
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Roadmap of Chinas asset
management sector opening up
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Timeline
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QFII
Foreign
investors
Foreign Fund
Offshore Manager
Fund
Domestic
assets
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QDII
Domestic
investors
China Fund
Onshore Manager
Fund
PRC Investment
Outside PRC return
Overseas
assets
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QFLP
Foreign LP
Outside PRC Foreign or
PRC Domestic GP
Domestic LP
Fund RMB
manager fund
Domestic
assets
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QDLP
Domestic Domestic
limited partners general partner
RMB
fund
PRC
Outside PRC
Foreign general
partner
Offshore fund
manager Master
fund
Foreign
assets
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New rule under FAQ No. 10
Foreign financial
institution
Investment
return
Trustee and management agreement
Fund JV or WFOE
Domestic
assets
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In the futurea fully open market?
ONE Domestic
fund Investor
Domestic
assets
Both domestic and overseas investors can invest into ONE fund that is managed by
either domestic or foreign managers making investment into various classes of assets
in global markets
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A glance at Chinas private securities
fund industry
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Overview of Chinas private funds market
40,000
30,000
23,711
21,948
20,000
11,763
10,000 7,609 7,238
4,187
3,272
1,160 1,839 1,279
460
-
Private
PrivateSecuties
Securities Private Equity Venture Capital Others
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Overview of Chinas private securities funds market
25,000 23,711
22,911
19,605 21,948
20,000
17,892
16,756 19,447
15,000 16,813
13,078
14,553
9,723 11,963
10,000 8,506 10,965 11,332 10,747
8,970 8,981
5,544 7,609
4,383
5,000 5,851
3,535
2,527
-
01/01/2015 01/04/2015 01/07/2015 01/10/2015 01/01/2016 01/04/2016 01/07/2016
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Overview of Chinas private securities funds market
The number of managers for each kind of private securities funds July 2016
5,778
5,000
4,000
3,000
2,000
1,000
1,000
458 572
39 35 76 62 110 76
-
>=5 Billion 2~5 Billion 1~2 Billion 0.1~1 Billion <0.1 Billion
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Private securities fund management business
Different market players
Investor
Investment
Adviser
Fund Manager
Outsourcer Custodian
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Private securities fund management business
Organisation chart example
Board of
Shareholders
Board of Directors/
Executive Director
Risk Control
Committee
General Manager
Deputy Investment
General Manager Decision Committee
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Private securities fund management business
Relevant regulations
Jan 17, 2014 The Trial Method for Private Investment Fund Managers Registration and Funds Filing
Jun 26, 2014 The Trial Guidance Regarding Risk Management of Fund Management Companies
Aug 22, 2014 The Interim Measures on Supervision and Management of Private Investment Funds
Oct 16, 2014 The Trial Guidance for Fund Raising and Transfer of Private Investment Funds
Nov 24, 2014 The Trial Guidance for Fund Outsourcing Services
Dec 15, 2014 The Self-discipline Principles for Professional Conduct of Fund Personnel
Feb 1, 2016 The Trial Guidance Regarding Internal Control of Private Investment Fund Managers
Feb 4, 2016 The Administrative Measures for Private Investment Funds Information Disclosure
Feb 5, 2016 The Guidance for Legal Opinion of Private Investment Fund Managers Registration
Apr 15, 2016 The Administrative Measures for Private Investment Funds Raising
Apr 18, 2016 The Guidance for Fund Contract of Private Investment Funds
Jul 14, 2016 The Provisional Regulations Concerning Private Asset Management Business of
Securities and Futures Institution
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The Provisional Regulations Concerning Private Asset
Management Business of Securities and Futures
Institution
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Private fund managers involvement
in mutual fund business
Possibility
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Practical issues for foreign managers
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Issue No. 1 Name registration
Conflict between AMACs requirement and the practice of Administration for Industry
and Commerce (AIC) regarding company name registration
In many locations, AIC does not allow foreign-owned private securities fund managers
to include the words fund management, investment management, asset
management in their names but AMAC requires them to do so
Local governments such as Shanghai and Tianjin are currently looking into this matter
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Issue No. 2 Potential Challenges in Fund Raising
Limited track record in China domestic market QFII, Shanghai HK stock connect, CIBM
Competitions from local fund mangers
Lack of institutional investors
Access to High Net Worth Individuals largely controlled by channels like private
banking and other placement agents
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Issue No. 3 Operating model
JVs/WFOEs are required to make independent decisions for funds (i.e. they cannot be
merely placing trading orders on behalf of foreign institutions)
JVs/WFOEs are only allowed to appoint a qualifying investment advisor (one who is
registered with AMAC for at least a year, among other conditions)
Functions that are clearly can be outsourced: distribution of fund units, payment
agent, unit registration, valuation, IT support
Question: what functions have to be done in house?
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Issue No. 3 Operating model (continued)
Foreign financial
Model # 1?
institution
Investment
return
Trustee and management agreement
Fund JV or WFOE
Domestic
assets
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Issue No. 3 Operating model (continued)
Foreign financial
Model # 2?
institution
Dividends/
consulting
Outside PRC Investment fees
PRC consulting
Investors agreement
Investment
return
Trustee and management agreement
Fund JV or WFOE
Domestic
assets
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Issue No. 3 Operating model (continued)
Foreign financial
Model # 3?
institution
Dividends
Outside PRC Licensing /Royalty
PRC agreement
Investors
Investment
return
Trustee and management agreement
Fund JV or WFOE
Domestic
assets
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Issue No. 4 Taxation of private securities
investment funds
Currently, there is no specific guidance on the taxation of such funds
In practice, guidance is taken from the taxation basis of securities investment funds:
- Caishui [2008] No. 1 Gains from trading of Chinese shares and bonds, dividends
from Chinese shares, interest from Chinese bonds and other income derived by a
domestic securities investment fund are temporarily exempt from corporate income tax.
- Caishui [1998] 55 & [2002] No. 128 Listed companies and issuers of bonds
should withhold 20% individual income tax from payment of dividends or interest
to a domestic securities investment fund.
- Caishui [2016] 36, securities investment funds are exempted from VAT for transfer
of shares and bonds.
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Issue No. 5 Taxation of incentive fee
Investors
Investment
return
There are different methodologies of calculating incentive fees commonly used in the market
Incentive fees are usually calculated either based on the funds high water mark or
each investors high water mark. The timing of calculation (e.g. at regular intervals or
at redemption) and form of incentive (e.g. cash or units) varies
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Issue No. 5 Taxation of incentive fee (continued)
Some tax issues to consider from income tax and VAT perspectives:
Nature of incentive Service fee? Investment income?
Timing of taxation
Adjustments made to incentive fee payable by investors who subscribe when net asset
value is above or below the high water mark
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Issue No. 6 Transfer pricing
Product Ongoing
Research Fund Raising Execution
Design modification
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Issue No. 6 Inter-company charges subject to
challenging
In response to the United Nation's request for comments on intra-group services and
management fees, China's SAT submitted its views to be included in the next update of
the United Nations Practical Manual on Transfer Pricing
1. Benefit test 2. Are the 3. Have the 4. The definition Benefit Test Need Test
from the services services of shareholder
perspectives necessarily already been services in the
of both service needed by the remunerated OECD TP
provider and subsidiary in through the TP Guidelines is Duplication Value
recipient China? policies of too narrow Test Creation Test
other related
party
transactions
Remuneration Authenticity
Test Test
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Q&A
PwC
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