Tax evasion with gold in China

A company called Longhaitong from the Chinese city of Shenzhen has evaded millions in taxes by buying gold through the Shanghai Gold Exchange (SGE), according to the South China Morning Post. The company bought more than €120 million worth of gold on paper through the Shanghai Gold Exchange so that it could reclaim the 17% VAT on the gold. As a result, the company managed to avoid €20.8 million in taxes.

The company in question received invoices from the SGE and resold these invoices to other companies at a premium of 6%, so that they too could trade gold without VAT. Longhaitong herself had no interest in the gold, so she immediately sold it back to the Shanghai Gold Exchange.

Buying gold

This merry-go-round was repeated, until one day the Chinese tax authorities showed up on your doorstep. At that time, the company had already resold 143 invoices from the Chinese gold exchange to other gold traders outside the SGE. "The company just wanted to have invoices for gold, so they immediately resold the gold supplied by the SGE", a spokesperson for the tax authority told the South China Morning Post.

It may be a technical story, but the bottom line is that several companies used the Shanghai Gold Exchange's invoices to evade millions in taxes.

Pledge

It is not the first time that fraud has been discovered in China in which gold plays a role, because in the summer of 2014 Discovered the Chinese investigative service that gold was widely used as collateral by companies to get a loan. That wasn't a problem, until it was discovered that the same money had been given up as collateral multiple times.

In an attempt to curtail lending, Chinese banks were only allowed to lend if there was good collateral in return. Eventually, loans were made on gold that didn't exist at all or that had already been lent out several times.

Company in China used gold to avoid taxes (Image from Reuters)