Is it true that U.S. companies in China receive a tax rebate if they export?
In the Conservative Voice, I came across this peculiar twist with the added consequence:
It’s no wonder that DaimlerChrysler will soon start building cars in China to ship back and sell in the U.S. under Chrysler names such as Dodge and Jeep. This decision means that 11,000 manufacturing jobs and 2,000 white-collar jobs will be eliminated over the next 24 months.
The SUV assembly plant in Newark, Delaware will be closed. The Warren, Michigan truck plant and the St. Louis County, Missouri assembly plants will each lose one of two shifts.
The combination of avoiding U.S. corporate taxes and having Chinese taxes rebated (forgiven) will help DaimlerChrysler to sell new cars in the United States much cheaper than any it can manufacture in Detroit.
The rebate tax in combination with VAT is dynamite.
After doing a little research, I found that apparently the rebate mechanism has been alive and well in China for some time as a way of driving their exports.
Damn. This beats transfer pricing anyday!
Ok, where is the WTO in all of this? Well, exactly neutral. As long as all companies within China have the same playing field, everything is hunky-dory.
For a more technical discussion of how the rebate works in conjunction with China’s VAT, see here.