CHINA stands to lose billions of yuan in revenue because of a gaping loophole Hong Kong accountants and legal experts believe they have found in an unpopular new property gains tax.
A property company wanting to sell mainland property to another company can avoid the tax by selling only its shares to the buyer, who will in turn assume ownership of the property concerned.
Robert Lee, a partner of law firm Deacons, said the method was workable because when it came to properties, there was no distinction in the Chinese laws between the legal title and the beneficial interest.
He said this could be a way for companies to avoid the tax which had an effective rate of more than 50 per cent.
'As far as China is concerned, one cannot keep the beneficial interest [of the property] through a declaration of trust.' The question is, now the loophole has been publicly exposed, will the authorities in Beijing quickly take measures to remove it.
Developers have also noted that another way to avoid the tax was to set up a paper company to sell a property to, then sell the shares of the paper company to an independent buyer.