HNA Group

HNA yet to apply for tax-exempt status for NY charity Hainan Cihang

Tax exemption is usually sought by US charities as it shields their funds – and their donors – from the taxman, leaving more resources for philanthropy

PUBLISHED : Thursday, 16 November, 2017, 10:38pm
UPDATED : Thursday, 16 November, 2017, 11:00pm

Nearly a year after its incorporation, the New York charity of HNA Group, China’s airline-to-property conglomerate, has yet to apply for tax-exempt status.

Tax exemption is usually sought by US charities as it shields their funds – and their donors – from the taxman, leaving more resources for philanthropy.

However, the Hainan Cihang Charity Foundation, which counts a 29.5 per cent stake in HNA as its main asset, said it had not decided whether it would seek to be exempted from paying federal taxes when it registered as a charity with the New York Attorney General’s office in September. It did not explain why it was undecided about its tax status.

Hainan Cihang, which has so far committed to donating to Harvard University and the Massachusetts Institute of Technology (MIT), only said in its registration that it plans to make grants to domestic and foreign charities. Harvard and MIT declined to comment when contacted and no details on the donations to universities were available.

Philipp Roesler, a former German economy minister and vice chancellor, is set to become the chief executive officer of the foundation in a few weeks, a source familiar with the situation said this month.

HNA and its lawyers, Allen Wu from Wu & Kao, and Michael Lehmann from Dechert, declined to comment on whether any decision on the charity’s tax status has been made. Roesler did not respond to requests for a comment.

HNA’s ownership structure has drawn scrutiny from banks and regulators this year amid allegations that Chinese politicians and their relatives own a part of their company. HNA has denied the allegations and sued for defamation.

As the biggest shareholder in HNA, Hainan Cihang counts its stake in the conglomerate as its main asset. HNA, in turn, said its holdings – which includes a stake in Germany’s Deutsche Bank – are worth 1.2 trillion yuan (US$181.3 billion), while its total debt doubled to 718 billion yuan at the end of June compared to the end of 2015.

If it were exempted from paying taxes, Hainan Cihang would be recognised by the US tax authority as a private foundation, a designation that requires it to cut its stake in HNA to 20 per cent or less because foundations cannot own more than a fifth of any enterprise, according to six lawyers and charity experts.

Private foundations are also required by US law to distribute 5 per cent of their assets every year, and their tax returns would be available to the public, they said.

If Hainan Cihang decided against seeking a tax waiver, any income earned would be subject to taxes, although its assets could be protected from any HNA creditors, the experts said.

“Generally, when people form charities, they want the tax deduction. They go to great lengths to secure that,” said Marcus Owens, a partner at law firm Loeb & Loeb, which specialises in non-profit organisations.

Repeated emails and phone calls to Amy Spitalnick, spokeswoman from the New York Attorney General’s office, which regulates charities in New York, went unanswered.

Uncertainty over Hainan Cihang’s tax status adds to the enigma around HNA.

For at least 10 years, around 17 per cent of HNA’s shares were held in trust by a key HNA banker as a “favour” to the company. The shares, along with another stake, were transferred to Hainan Cihang in July, leaving HNA majority-controlled by the New York charity and an affiliate in China.

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