Interview with Min Guo, Partner of Gide Loyrette Nouel

Ms. Min GUO, a senior legal and tax expert with over 20 years of experience shared her views on current investment environment in China with APAC BUSINESS in an interview. Ms. Guo is a member of the China Bar and Institute of Certified Public Taxation Consultants of China, now she is a partner of Gide’s Beijing office and the head of Gide’s China Tax practice. She joined Gide’s Beijing office in 2005 after working in the Tax department of one of the Big Four accounting firms as a tax consultant. Ms. Guo has deep expertise in analyzing and structuring the fiscal aspects of cross-border mergers and acquisitions, cross-border transactions, joint ventures, project financing, company restructuring, foreign investment projects and tax-related reforms and disputes. She also has specialist experience in customs law, foreign exchange control and corporate legal matters.


APAC BUSINESS: China remains the most active region for foreign investment in the Asia Pacific region, despite headwinds. Ms. Guo, you have been advising many companies on their foreign investments in China, please tell us what are some of the latest FDI regulations and trends that you’d like to highlight?

Min Guo: Since the beginning of 2023, the world’s economic growth has slowed down and become weaker, and China’s utilisation of foreign capital (FDI) has also come under pressure, resulting in a year-on-year decline. Many multinational corporations (MNCs) have taken a rather conservative approach toward their international strategy, while happy to remain on the sidelines of the large Chinese market.

In response to this economic downturn, on 25 July 2023 China issued Opinions on Further Optimising the Environment for Foreign Investment and Increasing Efforts to Attract Foreign Investment (known as the “24 Measures”), and on 8 February 2024 it issued an Action Plan for Solidly Promoting High-Level Openness to the World and Making Greater Efforts to Attract and Utilise Foreign Investments (the “Action Plan”) to reinforce the 24 Measures. These signal promising opportunities for global investors.

The 24 Measures and the Action Plan demonstrate the government’s continuous efforts towards liberalising FDI in China, including further shortening the Negative List for Foreign Investment; launching more pilot programmes on highly regulated sectors (like medical treatment, value-added telecommunication, banking & insurance and bond & fund business); promote a fair competition environment for foreign-invested enterprises in public procurement and strengthening the tax incentives for a further extended Catalogue of Industries Encouraging Foreign Investment.

In terms of future trends, I would say that China still has advantages and vast space for foreign investors to explore. China is the world’s largest market and offers great growth potential; it will continue to unleash huge demand in advanced manufacturing, new urbanisation and upgrading of the consumer structure. At the same time, China’s well-equipped infrastructure network, abundant human resources and fast-developed innovative application can offer more opportunities for foreign investors to expand in new technologies, new industries, and new business models.

APAC BUSINESS: Cross-Border transactions are always very challenging. In your view, how should companies tackle the tax risk affecting Cross-Border M&A and transactions in China?

Min Guo: In our daily practice over the past few decades, we have seen a great number of MNCs encounter challenges in their cross-border transactions, particularly in certain controversial tax areas concerning the implementation of tax treaties in China.

The challenges and controversies frequently concern issues such as making a price adjustment and settling the tax indemnity in an M&A deal; how a permanent establishment (“PE”) is determined and taxed in China in cross-border services; how the cross-border secondment of expatriates is dealt with and taxed in China – whether as a service PE or non-taxable if it qualifies as a cost reimbursement; how cross-border licences and related technical services are qualified and taxed, whether they are globally taxed as royalties or partly taxed as a service PE; whether and how an indirect equity transfer is taxed in China, and under which conditions; if taxable in China, how capital gains attributable to PRC assets are determined; how group annual transfer pricing adjustments are implemented, how transfer pricing adjustments are reconciled for tax compliance purposes; and navigating through the tricky foreign exchange and customs control and regulatory requirements.

While there is no perfect or universal solution to the various controversies presented, foreign taxpayers should clearly be aware of them and anticipate them in order to optimise their deal and contractual structures, to mitigate tax risks and losses through well-documented evidence and arguments, from substance to form. Contractual documents, even for intragroup transactions, should be well prepared with a clear justification of relevant economic substance and tax qualification to avoid tax authorities choosing to apply an unfavourable tax regime, thus creating unnecessary additional tax costs.

APAC BUSINESS: Divestiture and carve-out transactions have increased recently, so what are some key considerations for a successful divestiture?

Min Guo: Many foreign investors have started to restructure their PRC business to streamline their organisations and simplify the corporate structures. These may concern equity transfers, business carve-outs, capital reductions, mergers, dissolutions and liquidations. If any of the restructuring entities is a joint venture company whose Chinese partners are Chinese state-owned enterprises (SOE), the reorganisation or divesture becomes even more complex and time-consuming.

Foreign investors should study and compare the pros and cons of each reorganisation or divesture scheme from Chinese legal and tax perspectives before selecting the best option depending on its priority and primary concerns. They should always carefully review and assess the following key elements in order to efficiently and successfully implement the restructuring:

In the case of an equity transfer, it is key to look back at the shareholders’ agreement and see whether there are any constraints related to the transfer, like a lock-up period, a right of first refusal, a mechanism setting the sale price, tag/drag-along rights and what internal corporate approvals must be obtained. If any potential buyer (including an existing Chinese partner) is an SOE, the transferred equity must be subject to a mandatory evaluation by a qualified evaluation institution and the sale price cannot be higher than 110% of the valuation, otherwise separate approval from SASAC would be needed. Foreign investors have to anticipate all these constraints before going forward.

In the case of a merger, capital reduction or voluntary liquidation, they are all subject to a more complex and time-consuming procedure and involve higher costs to implement, including notifications to creditors and a public announcement, a mandatory SOE evaluation, the disposal of assets and associated tax costs, a settlement with creditors (particularly banks), employees’ severance pay and tax deregistration procedure. Thes activities often trigger special audits (in terms of tax, environmental, labour, etc.) and regulatory issues to see whether there are any historical irregularities.

APAC BUSINESS: Can you tell us a little bit more about Gide Loyrette Nouel? As a global firm, how you add value to your clients? Can you share any inspiring stories or interesting cases?

Min Guo: Founded in 1920, Gide is a premier, Paris-based international law firm operating out of 11 offices worldwide. With 500 lawyers drawn from 35 different nationalities, the firm offers some of the most respected specialists in national and international corporate law.

Present in China since 1987, Gide was one of the first foreign law firms to operate in China. Working from two offices in Beijing and Shanghai, our China team is esteemed full-service firm, handling complex cross-border transactions and reorganisations for a mix of international and Chinese corporations, having notable experience in advising PRC corporates on onshore and offshore investment structures as well as tax efficiency issues.

Thanks to firm’s 100-year credentials in Africa, we have a strong and unique position on the Chinese market. We have advised many large Chinese state-owned enterprises in their African projects in the sectors of mining, energy, natural resource, infrastructure, power and other industrial projects. Our advice covers all stages of projects, including the corporate/JV aspects and project/industrial aspects of the deal, many of which are national strategic and groundbreaking transactions.

APAC BUSINESS: Ms Guo, you are a senior legal and tax professional with over 20 years of experience in China, please tell us more about yourself and your journey in this industry.

Min Guo: In 2003, I started my career as a tax consultant from KPMG, where I received well-designed professional training, worked under supervision on complex IPO projects and assisted many MNCs in setting up their initial footprints in China. I joined Gide in 2005, with the strong desire to become a transaction lawyer.

I have been working with a team of Western and Chinese lawyers, cooperating tightly with the firm’s specialist teams in Paris and its other international offices for almost 20 years. During this time, I have expanded my specialisations from taxation to others, including mergers & acquisitions, corporate/restructuring, outbound investments and projects. In recent decades, we have offered a large number of European MNCs and Chinese SOEs high quality services, combining solid legal knowledge and a highly commercial approach to their needs, across all sectors of business law.

My decades of experience in accounting, taxation, particularly international taxation, definitely offer us more opportunities when advising MNCs on their cross-border transactions. Our clients do not need to work with a law firm and separate tax accountants; we provide legal and tax seamless support to ensure their projects are legally compliant and tax efficient. On top of tax advisory work, we also assist on tax reviews and audits.

I always believe the most value added to the business of clients is to be very practical and solution driven. We all know tax challenges are there, but we are trying to thread the needle to manage the risk and maximise benefits while always being compliant.

In view of my long-standing experience in advising on the taxation of foreign-invested enterprises, I have often been invited to participate in symposiums organised by local governments and tax offices to give feedback and consult on their implementation and improvement of tax policy, this also facilitates the communication and understanding between tax administration and taxpayers, which is beneficial to all parties.