Chapter 12

Due Diligence Guidelines –

Financial

Appendix II – Tax Discussion Points and Sample Tax Questions for the Reporting Accountant and Tax Advisers

Part 1: Common Categories of Topics for Discussion With Management of the Listing Applicant

(a) The jurisdictions in which the listing applicant is taxed.

(b) Enquiry as to / description of any jurisdictions in which the listing applicant is not taxed but where tax exposure has been considered (or is thought to be a possibility).

(c) The significant categories of taxation to which the listing applicant is assessable in course of its business:

(i) Income / profits taxes

(ii) Capital taxes

(iii) Real estate taxes

(iv) Sales taxes

(v) Royalties

(vi) Withholding taxes

(vii) Other?

(d) Provisions and effective rates. (If applicable, the nature and extent of any prior year losses that are available to shelter future taxable income).

(e) Due dates for payment, and significant outstandings.

(f) Status of tax filings and assessments:

(i) Have all requisite tax filings been made over the last 5 years?

(ii) Please discuss the status of the listing applicant’s tax assessments (to cover the listing applicant, its subsidiaries and all other entities material to the listing applicant, collectively the “Company”).

(iii) Are there any material rulings which you have considered (or have been advised) to be necessary or prudent which have not been sought or obtained?

(iv) Is there (or has there been) any material dispute or disagreement between the Company and any government authority relating to taxation (or any significant outstanding tax claim)?

(v) Are any audits, investigations or disagreements (or results thereof) outstanding or pending?

(vi) Are any material tax reassessments anticipated?.

(g) What payments are anticipated to be made by the Company in respect of deferred taxes (i) in the next 18 months and (ii) thereafter? How were these evaluated and what advice has been taken?

(h) Whether any part of the business is significantly dependent upon or benefits from tax concessions, exemptions or preferential tax treatment of any nature? If so:

(i) What is the scheme/requirement for the tax exemption/holiday?

(ii) How long does the Company foresee these exemption/holidays occurring?

(iii) What future trends and changes are anticipated?

(i) Any material tax structuring arrangements.

(j) Please discuss the Company’s transfer pricing issues. Has a transfer pricing study been done? Are the policies and practices consistent with any study and/or industry norms and/or your recommendation as to best practices?

(k) Does the Company operate any secondment arrangements and, if so:

(i) How are they treated for tax purposes?

(ii) Are any payments made from off-shore (outside Hong Kong) to any of (i) the Company (or any of its subsidiaries or affiliates) or (ii) any directors or employees in Hong Kong, where the payments are or were not treated as constituting Hong Kong sourced income for tax purposes ?

(iii) Who has advised on the secondment arrangements ?

(l) Have you had any advice on the tax consequences arising from the pre-IPO reorganisation (if any)? Are there any significant tax consequences or uncertainties ?

(m) Who are the listing applicant’s external tax advisers if any (collectively, “Tax Advisers”)?

(n) What significant advice has been received over the previous 5 years, or continues to affect the listing applicant’s current tax policies?

Part 2: Questions for the Reporting Accountant on Tax Matters Generally

(a) Describe what work was undertaken for the audit and accountant’s report to ensure (i) sufficiency of provisions / reserves and (ii) sufficiency of disclosure in financial statements?

(b) Have all requisite tax filings been made over the last 5 years? To the extent you have knowledge from your audit work, please comment on the status of the listing applicant’s tax assessments (to cover the listing applicant, its subsidiaries and all other entities material to the listing applicant, collectively the “Company”).

(c) What tax exemption/holidays does the Company currently have?

(d) Are you aware of any material dispute or disagreement between the Company and any government authority relating to taxation (or any significant outstanding tax claim)? If so, please describe what steps have been taken to investigate / evaluate?

(e) Are you aware of any audits, investigations or disagreements (or results thereof) outstanding or pending?

(f) Are you aware of any material tax rulings pending or which have not been sought or obtained?

(g) As part of your audit work, did you consider any aspect of the Company’s transfer pricing issues. If so, were there any issues that you investigated further or discussed at any length with management?

(h) In the course of your audit work, did you identify any payments made by the Company and its subsidiaries and affiliates to directors and/or employees which you were concerned might not have been appropriately treated for tax purposes?

(i) In the course of your audit work, did you identify any secondment arrangements and, if so, do you have any concern that they have not been appropriately treated for tax purposes? Did you identify any payments made from off-shore (outside Hong Kong) to any of (i) the Company (or any of its subsidiaries or affiliates) or (ii) any directors or employees in Hong Kong, where the payments were not treated as constituting Hong Kong sourced income for tax purposes?

(j) Have you considered any tax consequences or issues arising from the pre-IPO reorganization (if any)? Are you aware of any significant tax consequences or uncertainties

(k) Did your audit reveal any significant tax risk issues or uncertainties? Please describe any significant tax-related anomalies, deficiencies or irregularities encountered?

(l) Were there tax-related issues that were the subject of prolonged discussions with the Company’s management?

(m) Are the Company’s tax reserves adequate in your opinion?

(n) How has the Company accounted for deferred taxes (i) in the next 18 months and (ii) thereafter?

Part 3: Questions for the Reporting Accountant on PRC Tax Matters

(a) Based upon your audit, what categories of PRC taxation has each PRC enterprise principally recognised?

(b) Please identify the tax filings you have reviewed: (to enable the sponsor to ascertain whether they are the same as those obtained by the sponsor)?

(c) What work did you perform to verify consistency between the Company’s audited financial statements (and the underlying financial statements of group entities) and applicable PRC tax filings?

(d) Were any inconsistencies revealed?

(e) Was there any difficulty in identifying or locating applicable PRC tax certificates? Do you have any concerns about the authenticity of any such certificates?

(f) What work (if any) did you perform in relation to the Company’s tax filing obligations relative to compensation/tax affairs of individual directors and employees (including any secondees from overseas)? Were any deficiencies or irregularities identified?

Part 4: Questions for the Listing Applicant’s Tax Adviser(s)

(a) Please confirm the history of your work for the Company.

(b) What advice have you given? Was any engagement or request for advice terminated without you issuing your advice (and, if so, why)?

(c) What are the most important issues you have advised on or considered?

(d) Were all material rulings requested and obtained, or are there rulings which are necessary or prudent which have not been sought or obtained?

(e) All questions in Part 1 or Part 2and 3 above which are within the domain of the relevant Tax Adviser (either as phrased, or as suitably amended).

(f) What conclusions did you reach concerning (i) the Company’s tax policies and (ii) its tax administration?

(g) What aspects could in your opinion be considered aggressive?

(h) What material uncertainties are there in your opinion?