GGRAsia – AGTech faces US$7-mln China tax demand

AGTech faces US$7-mln China tax demand

Jul 15, 2016 Newsdesk Latest News, Rest of Asia, Top of the deck

Lottery equipment and services specialist AGTech Holdings Ltd is offering to pay approximately RMB49.1 million (US$7.3 million) to settle an income tax demand from the mainland China authorities, said to be owed on the exercise of share options in the Hong Kong-listed company by employees or former employees.

AGTech does most of its business on the mainland, with investments in equipment, software and services for China’s official lottery system. In March, it announced a proposed deal whereby Alibaba Group Holding Ltd – an investor in taobao.com, mainland China’s largest online shopping portal – would take a majority stake in AGTech for about US$300 million. Under the deal, AGTech would be authorised by Alibaba group subsidiary Taobao (China) Software Co Ltd to operate a “lottery channel” on the Taobao shopping website.

AGTech said in its Thursday filing to Hong Kong’s Growth Enterprise Market: “The company wishes to emphasise that the reason for implementing the proposed [tax] settlement is to rectify its historical non-compliance, which the company would have pursued and implemented regardless of the subscription [Alibaba deal], and the subscriber is not providing any benefit to the relevant employees (or the group) in connection with the proposed settlement.”

The filing added that although the tax owed on the exercise of share options was technically the responsibility of the employees and ex-employees concerned, AGTech had no written agreement to that effect and could not compel them to pay. Mindful of that, and the likely “adverse impact on staff morale” if it tried to get the money from them, AGTech was willing to pay the bill, it said.

Thursday’s filing stated that the tax demand related to the exercise of share options by 37 employees, 10 of whom were no longer working with the group. Among the 27 that remain, two – Bai Jinmin and Liang Yu – are currently executive directors of the company, said the filing.