Forterra Trust (formerly: Treasury China Trust)

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Good noon Big Boss KopiKat san.

let sing Money Money Follow Me Home togetherCool
(30-08-2013, 01:58 PM)KopiKat Wrote:
(30-08-2013, 12:46 PM)kbl Wrote: 1st time bot *s-chip*.

OMG! I didn't realise that... with the change in ownership + all assets in China... you're not wrong in your classification.... Does Singapore have extradition treaty with HongKongers? I suppose from '97 onwards, they ought to have become Chinese nationals?? In that case, even Li Ka-Shing companies ought to be seen as S-Chips.... *shudders*... Tongue

Fortunately (?), Nan Fung has other projects in Singapore. In the worst case, we go stage protest (after getting necessary police permits) outside their office / projects...Big Grin
Not a call to Buy or Sell

Mr Bump: All I Can Smell Is My FEAR
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(30-08-2013, 12:18 PM)HitandRun Wrote:
(30-08-2013, 09:43 AM)KopiKat Wrote: I'd have thought that in your example, when Central Park was sold, the Deferred Tax Liability becomes an actual Tax Expense (Deferred Tax) which eats into the Profit. It's the realisation of selling at NAV (of that asset, which'd been revalued higher previously and resulted in that higher Deferred Tax Liability component) that gives the bigger profits.
KopiKat san

Don't take my word for it. Take a look at their computation on 10 April 2013. My computation is just back of the envelope anyhow whack kind...Cool

The Proposed Sale is expected to result in a gain of approximately S$21.47 million on the following basis:

S$ (m)
Sale Consideration 333.47

Less:
Central Plaza Carrying Value 361.98
Estimated Withholding Tax 15.56
Estimated Costs of Sale 7.94

Add:
Reversal of Deferred Tax Liability 73.48

Estimated Gain on Sale 21.47

Thanks! So, despite selling at a 7.9% discount to Carrying Value and less Costs of Sale, there's still a Gain... as the Reversal of Deferred Tax Liability is a lot higher than the Withholding Tax.... Must be what 'freedom' mentioned in an earlier post on tax avoidance... let's call it tax planning...

わかりました... ありがと...

Reference : CIRCULAR TO UNITHOLDERS IN RELATION TO THE PROPOSED SALE OF CENTRAL PLAZA



kbl Wrote:let sing Money Money Follow Me Home togetherCool

Usual Vol so low plus so many Orang Kaya aro'.... I afraid I become toast... Kaya Toast...Blush
Luck & Fortune Favours those who are Prepared & Decisive when Opportunity Knocks
------------ 知己知彼 ,百战不殆 ;不知彼 ,不知己 ,每战必殆 ------------
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This issue of “deferred tax liability” of Forterra is an interesting one.

This is the way I understand it :

Forterra has made provisions for “deferred tax liability” on its balance sheet for ALL of its assets - investment properties and development properties. These provisions for future taxation have been made on the basis that the PRC corporate tax rate of 25% would be charged if the Group decided to realise its investment and development properties at the year-end valuations through the sale of the underlying assets after the year end.

Since, provisions for future taxation in the form of “deferred tax liability” have already been made on its balance sheet for all of its assets, and if eventually at disposal of any of these assets, Forterra ends up not liable to pay for this tax – then this would become a “saving” or “gain”, as in the case of divestment of “Central Plaza”.

As at 30-June-2013, the “deferred tax liability” provision stands at SGD 399 million – equivalent to about SGD 1.50 per share - a very substantial amount indeed.

In the case of Central Plaza, the sale was transacted offshore – selling/buying of an “offshore SPV” in Hong Kong, which owns 100% of the PRC entity that holds the “Central Plaza” asset. Onshore in China, nothing change hands, the same PRC entity is still holding the same asset. Therefore, no tax is liable to be paid in China by Forterra for this offshore transaction – resulting in “reversal” of deferred tax liability for Forterra (the Seller) - "gain"

As far as the Buyer (Carlyle & companies) of “Central Plaza” is concerned, if the new owners were to dispose of “Central Plaza” ONSHORE in China, they would have to pay the “deferred tax liability” in China. In another words, Carlyle’s price was inclusive of the “deferred tax liability” of “Central Plaza”

If Nanfung were to acquire Forterra at SGD 4.50 per share and assuming that subsequently it could dispose of all assets of Forterra OFFSHORE at a price equivalent to SGD 4.50 per share, then there would still be a net profit equivalent to SGD 1.50 to be made –assuming also that Forterra would have a “reversal of deferred tax liability” equivalent to about SGD 1.50 per share.

Putting assumptions aside, buying in at SGD 4.50 per share – how much profits are there left to be made?

Well, there might still be profits to be made, but the MOS is not that adequate considering that

1) Central Plaza was sold at 7.9% discount to its BV
2) Future offshore buyers might want a bigger discount to NAV
3) Future offshore buyers might want seller to bear all or part of “deferred tax liability”
4) If no “suitable” offshore buyers are available, transactions would most likely to be done onshore – meaning no saving on “deferred tax liability”

Comments are most welcomed – I guess I understand what “HitandRun” is getting at - but we both could be wrong.

(Vested)

The “Central Plaza” Transaction:
“Central Plaza” is owned by Shanghai Central Land Estate Ltd (PRC)
Shanghai Central Land Estate Ltd (PRC) is owned by Central Land Estate Limited (HK)
Central Land Estate Limited (HK) is owned by CREO (Shanghai Central Plaza) Limited (Jersey)
CREO (Shanghai Central Plaza) Limited (Jersey) is owned by Forterra

Under this deal, the buyer (the Carlyle Group & companies) was buying “Central Land Estate Limited (HK)” from CREO (Shanghai Central Plaza) Limited (Jersey)
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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Boon San, Kopikat San and Orang Kaya San

The way I see is this. Vivi jie (aka Sister Vivien) has the stated objective to expand in China. Natural thing to do is to scout around and see whether there are attractive and cheap properties to buy or not.

The starting point of pricing of a property is the RNAV. Nobody will discuss a property based on cost price or how much deferred tax liability is being provided for, it is irrelevant, tio boh?

The Central Plaza thingy could have been a bit more complex than meets the eye because (contrary to what Freedom wrote) 5% withholding tax was paid. If it was a pure sale of company outside China, why is there a need for this withholding tax?

Go Vivi GO!Tongue
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Boon Wrote:This is the way I understand it :

Forterra has made provisions for “deferred tax liability” on its balance sheet for ALL of its assets - investment properties and development properties. These provisions for future taxation have been made on the basis that the PRC corporate tax rate of 25% would be charged if the Group decided to realise its investment and development properties at the year-end valuations through the sale of the underlying assets after the year end.

Besides Corporate Tax, just wondering if they'd also be a 'Land Appreciation Tax' if the transactions were to be done at the property level? From PwcHK,

Tax on specific objective
Land appreciation tax - a tax levied on the gains realized from real property transactions at progressive rates ranging from 30% to 60%. The gain is calculated based on the "land value appreciation amount", which is the excess of the consideration received from the transfer or sale over the "total deductible amount".


Perhaps, that's where the Deferred Tax Liability was coming from, whenever there's a revaluation gain. That may also explain why there's a need for tax planning with the multi-tiers of companies incorporated in different countries...

BTW, Latest NAV = $4.81 (Jun13) vs $4.50 (Mar13)

PS. While searching, found an Analyst Report (Edison) dated 23-Jul-13 but not related to our current discussion topic.
Luck & Fortune Favours those who are Prepared & Decisive when Opportunity Knocks
------------ 知己知彼 ,百战不殆 ;不知彼 ,不知己 ,每战必殆 ------------
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My lastest understanding on the following tax issues:

1) Deferred Tax Liability – as worked out by Forterra.

Source : On page 92 of AR2011: http://infopub.sgx.com/Apps?A=COW_Prospe...any&F=1601

“The deferred tax liabilities in respect of the change in fair value of investment properties have been accrued at the prevailing corporate income tax rate of 25% in the PRC. This is based on changes in the carrying value of investment properties against their tax base, including the changes in fair value and depreciation charge made in accordance with the PRC tax rules during the year

The above is the basis on which Foterra has made provision for “deferred tax liability

2) Capital Gains Tax liable to be paid by PRC companies on disposal of assets:

China is considered a high tax regime as far as investment property is concerned- too many property related taxes:

- Corporate tax = 25%
- Business tax = 5% on rental income
- Real estate tax = 1.2% on the 70.0% of the book value of the property
- Land use tax = between RMB1.50 and RMB30.0 per sq m per annum in respect of land area
- Stamp duty = property ownership transfer
- Deed tax = chargeable to transferees of land use rights and/or building ownership
- Land appreciation tax = 30.0% to 60.0% of the appreciation value as defined by the relevant tax laws.
- Urban Maintenance and Construction Tax and Education Surcharge = ?
-
Sources : Page 221 – 224 of Dynasty Reits IPO Prospectus : http://masnet.mas.gov.sg/opera/sdrprosp....B0024B59E/$File/1.%20Final%20Prospectus%20(18%20Oct%202012).pdf

Onshore assets disposal: Capital Gains Tax liable to be paid by PRC companies on disposal of assets should be based on “land appreciation tax” rate, and not corporate tax rate as calculated by Forterra.

3) How much tax is Forterra subject to pay in PRC for selling away “Central Plaza” offshore?

PRC Tax Reporting Obligations and Consequences for Certain Indirect Transfers of Equity Interests:
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued by the PRC State Administration for Taxation(國家稅務總局關於加強非居民企業股權轉讓所得企業所得稅管理的通知) on 10 December 2009 (effective 1 January 2008) and the Announcement on Enterprise Income Tax Administration on Non-PRC Resident Enterprises issued by the PRC State Administration for Taxation (國家稅務總局關於非居民企業所得稅管理若干問題的公告) on 28 March 2011, where a foreign investor or effective controlling party transfers the equity interests in a PRC resident enterprise (excluding the purchase and sale of the shares of PRC resident enterprises on the public securities markets) indirectly by way of the sale of equity interests in an overseas holding company, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate which is less than 12.5% for share transfers or (ii) does not levy tax on share transfer gain, the foreign investor should report such indirect transfer to the competent tax authority of the PRC resident enterprise within 30 days of the execution of the equity transfer agreement for such indirect transfer. The PRC tax authority will examine the true nature of the indirect transfer, and if the PRC tax authority considers that the foreign investor has adopted an abusive arrangement without reasonable commercial purposes and in order to avoid PRC tax, the PRC tax authority may disregard the existence of the overseas holding company that is used for tax planning purposes and re-characterise the indirect transfer. As a result, gains derived from such indirect transfer may be subject to PRC withholding tax currently at the rate of 10.0%. As such, any gains derived arising from a disposal of the shares in the Hong Kong Holding Companies, the BVI Intermediate Companies, the Cayman Intermediate Company and/or the BVI Holding Company may be subject to tax in the PRC, currently at the rate of 10.0%”

Source: Page 224 of Dynasty Reits IPO Prospectus

Answer: Forterra needs to pay PRC withholding tax of 10% on GAINS made from disposal of Central Plaza "offshore"(not on sales value)

Selling price of Central Plaza in 2013 = USD 266 million
Acquisition price of Central Plaza in 2007 = USD 148 million
Gains = USD 118 million
10% PRC Withholding tax = USD 11.8 million = about SGD 15 million = very close to the reported figure of SGD 15.56 million

Source : USD 148 million acquisition price is on Page 9 of CBRE report 3Q2007: http://www.cbre.com.sg/Publications/Docu...f_3q07.pdf

4) Final thoughts :
a) It appears that Forterra is in full compliance with the PRC taxation rule in its offshore disposal of Central Plaza. The withholding tax is payable in PRC - not liable for any withholding tax in Hong Kong or Jersey.
b) Allowing for 25% on revaluation gain as “deferred tax liability” is considered over-provision under “offshore asset disposal transaction” – about 15% over
c) Under “onshore asset disposal transaction” based on “land appreciation tax rate” – would provision for “deferred tax liability” based on 25% revaluation gain be enough?

(Vested)
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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(01-09-2013, 08:23 PM)Boon Wrote: My lastest understanding on the following tax issues:

1) Deferred Tax Liability – as worked out by Forterra.

Source : On page 92 of AR2011: http://infopub.sgx.com/Apps?A=COW_Prospe...any&F=1601

“The deferred tax liabilities in respect of the change in fair value of investment properties have been accrued at the prevailing corporate income tax rate of 25% in the PRC. This is based on changes in the carrying value of investment properties against their tax base, including the changes in fair value and depreciation charge made in accordance with the PRC tax rules during the year

The above is the basis on which Foterra has made provision for “deferred tax liability

2) Capital Gains Tax liable to be paid by PRC companies on disposal of assets:

China is considered a high tax regime as far as investment property is concerned- too many property related taxes:

- Corporate tax = 25%
- Business tax = 5% on rental income
- Real estate tax = 1.2% on the 70.0% of the book value of the property
- Land use tax = between RMB1.50 and RMB30.0 per sq m per annum in respect of land area
- Stamp duty = property ownership transfer
- Deed tax = chargeable to transferees of land use rights and/or building ownership
- Land appreciation tax = 30.0% to 60.0% of the appreciation value as defined by the relevant tax laws.
- Urban Maintenance and Construction Tax and Education Surcharge = ?
-
Sources : Page 221 – 224 of Dynasty Reits IPO Prospectus : http://masnet.mas.gov.sg/opera/sdrprosp....B0024B59E/$File/1.%20Final%20Prospectus%20(18%20Oct%202012).pdf

Onshore assets disposal: Capital Gains Tax liable to be paid by PRC companies on disposal of assets should be based on “land appreciation tax” rate, and not corporate tax rate as calculated by Forterra.

3) How much tax is Forterra subject to pay in PRC for selling away “Central Plaza” offshore?

PRC Tax Reporting Obligations and Consequences for Certain Indirect Transfers of Equity Interests:
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued by the PRC State Administration for Taxation(國家稅務總局關於加強非居民企業股權轉讓所得企業所得稅管理的通知) on 10 December 2009 (effective 1 January 2008) and the Announcement on Enterprise Income Tax Administration on Non-PRC Resident Enterprises issued by the PRC State Administration for Taxation (國家稅務總局關於非居民企業所得稅管理若干問題的公告) on 28 March 2011, where a foreign investor or effective controlling party transfers the equity interests in a PRC resident enterprise (excluding the purchase and sale of the shares of PRC resident enterprises on the public securities markets) indirectly by way of the sale of equity interests in an overseas holding company, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate which is less than 12.5% for share transfers or (ii) does not levy tax on share transfer gain, the foreign investor should report such indirect transfer to the competent tax authority of the PRC resident enterprise within 30 days of the execution of the equity transfer agreement for such indirect transfer. The PRC tax authority will examine the true nature of the indirect transfer, and if the PRC tax authority considers that the foreign investor has adopted an abusive arrangement without reasonable commercial purposes and in order to avoid PRC tax, the PRC tax authority may disregard the existence of the overseas holding company that is used for tax planning purposes and re-characterise the indirect transfer. As a result, gains derived from such indirect transfer may be subject to PRC withholding tax currently at the rate of 10.0%. As such, any gains derived arising from a disposal of the shares in the Hong Kong Holding Companies, the BVI Intermediate Companies, the Cayman Intermediate Company and/or the BVI Holding Company may be subject to tax in the PRC, currently at the rate of 10.0%”

Source: Page 224 of Dynasty Reits IPO Prospectus

Answer: Forterra needs to pay PRC withholding tax of 10% on GAINS made from disposal of Central Plaza "offshore"(not on sales value)

Selling price of Central Plaza in 2013 = USD 266 million
Acquisition price of Central Plaza in 2007 = USD 148 million
Gains = USD 118 million
10% PRC Withholding tax = USD 11.8 million = about SGD 15 million = very close to the reported figure of SGD 15.56 million

Source : USD 148 million acquisition price is on Page 9 of CBRE report 3Q2007: http://www.cbre.com.sg/Publications/Docu...f_3q07.pdf

4) Final thoughts :
a) It appears that Forterra is in full compliance with the PRC taxation rule in its offshore disposal of Central Plaza. The withholding tax is payable in PRC - not liable for any withholding tax in Hong Kong or Jersey.
b) Allowing for 25% on revaluation gain as “deferred tax liability” is considered over-provision under “offshore asset disposal transaction” – about 15% over
c) Under “onshore asset disposal transaction” based on “land appreciation tax rate” – would provision for “deferred tax liability” based on 25% revaluation gain be enough?

(Vested)

Any idea how they computed for Central Plaza if it's based on 25%? The figure seems large and that's why I thought they may have used 'Land Appreciation Tax' rates of 30% to 60%.

Reversal of Deferred Tax Liability = S$73.48m
Luck & Fortune Favours those who are Prepared & Decisive when Opportunity Knocks
------------ 知己知彼 ,百战不殆 ;不知彼 ,不知己 ,每战必殆 ------------
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Thank Boon for his/her effort. Much refreshing than a lot of other baseless claims.

Notice "The PRC tax authority will examine the true nature of the indirect transfer, and if the PRC tax authority considers that the foreign investor has adopted an abusive arrangement without reasonable commercial purposes and in order to avoid PRC tax, the PRC tax authority may disregard the existence of the overseas holding company that is used for tax planning purposes and re-characterise the indirect transfer. "?

In a way, it still depends on China tax authority to clear the tax issue. If I am not wrong, tax remains audit-liable for years. And China tax authority is quite moody. Vodafone acquisition has been completed for years and India government went as far as establishing a new law and applying it backwards to punish Vodafone. Hope PRC government not that desperate.

Anyway, great info, Boon!

(01-09-2013, 09:26 PM)KopiKat Wrote: Any idea how they computed for Central Plaza if it's based on 25%? The figure seems large and that's why I thought they may have used 'Land Appreciation Tax' rates of 30% to 60%.

Reversal of Deferred Tax Liability = S$73.48m

If I could make any guess, it could be deferred tax liabilities inherited from previous owners. Just like the buyer of this transaction, it has inherited the defer tax liabilities from Forterra.
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(01-09-2013, 10:33 PM)freedom Wrote:
(01-09-2013, 09:26 PM)KopiKat Wrote: Any idea how they computed for Central Plaza if it's based on 25%? The figure seems large and that's why I thought they may have used 'Land Appreciation Tax' rates of 30% to 60%.

Reversal of Deferred Tax Liability = S$73.48m

If I could make any guess, it could be deferred tax liabilities inherited from previous owners. Just like the buyer of this transaction, it has inherited the defer tax liabilities from Forterra.

Thanks! I guess you're right, looking thro' CREO AR2007, although no individual breakdown of the Deferred Tax Liabilities.

PS. Forterra (previously TCT) "acquired" CREO to list in SGX on 2010
Luck & Fortune Favours those who are Prepared & Decisive when Opportunity Knocks
------------ 知己知彼 ,百战不殆 ;不知彼 ,不知己 ,每战必殆 ------------
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Good noon Kopikat san, Boon san, Freedom san, Big Boss HitandRun sanSmile

Thank u Kopikat san for the link.

rubber stamp 2.23....seller hse 8 and 1each from 73 and 29.
Not a call to Buy or Sell

Mr Bump: All I Can Smell Is My FEAR
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