Dongfeng Motor's Tax Planning

Tax planning cases in Europe and the United States are abundant, primarily because court rulings make these cases publicly available in detail. In contrast, China provides very limited public information, and Chinese taxpayers rarely take disputes with tax authorities to court. Most tax disputes in China are resolved during administrative reviews. Consequently, we can only indirectly infer how Chinese multinational corporations conduct tax planning. Using limited publicly available information, we are going to analyze a tax planning case involving Dongfeng Motor, a leading Chinese automotive company. Readers are welcome to provide corrections if there are any errors or omissions.

On March 26, 2014, Dongfeng Group signed a formal shares purchase agreement with the French government, PSA Peugeot Citroën (“PSA”), and EPF and FFP companies controlled by the Peugeot family. Dongfeng invested €800 million to acquire approximately 14.1% of PSA's equity. This "marriage" between Dongfeng Motor and PSA was regarded as the largest "go global" move by a Chinese state-owned automobile enterprise since the reform and opening-up. However, the subsequent development of this partnership was less than ideal. While Dongfeng Motor achieved overall profits, its shareholding percentage has gradually decreased, and it currently holds only about 4.5%.

In this article, we will discuss the ownership structure of Dongfeng Group's investment in PSA, its tax planning methods, and the associated issues, risks, and recommendations.