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Tax Problems Blocks Issuance of Renminbi Bonds at OBUs

Taipei, Dec. 3, 2012 (CENS)--The policy of the Financial Supervisory Commission (FSC) encouraging domestic enterprises to float renminbi-denominated bonds at the offshore banking units (OBU) of domestic banks may come to a halt, due to disagreement of the Ministry of Finance (MOF) to grant the OBUs tax exemption for the business. As a result, Yuen Foong Yu Paper's plan to issue renminbi-denominated bond at OBU, the first such case, may be aborted.

Industry insiders noted that tax levy on interest income will boost the cost of enterprises for issuing renminbi-denominated bonds, prompting enterprises to switch to the plan of issuing dim sum bonds in Hong Kong.

The FSC may resort to the financial and taxation task force of the Executive Yuan (the Cabinet) to iron outs its difference with the MOF over the issue.

In order to assist enterprises raising funds and create more outlets for the OBU funds, the FSC announced on July 3 allowing domestic enterprises to issue overseas renminbi-denominated bonds, especially at OBUs. Subsequently, the FSC reported that domestic enterprises floating overseas renminbi bonds should withhold interest-income tax from investors but don't have to do so should the bonds be sold to OBUs, since OBUs are exempt from tax for their income. The MOF, however, stressed that OBUs can enjoy free tax for their income only from investing in offshore securities, a privilege which, though, doesn't include bonds floated by domestic enterprises.

Securities firms noted that according to the explanation of the MOF, the FSC will face the same tax problem for pushing domestic issuance of renminbi-denominated bonds in the future.
(by Philip Liu)
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