Feng Tay Enterprises Co (豐泰企業), a key supplier of Nike Inc, yesterday said it does not expect back tax issues at its two subsidiaries in China’s Fujian Province to affect its operations.
“Feng Tay will plead not guilty” to tax avoidance, company spokeswoman Amy Chen (陳麗琴) said by telephone, adding that the four shoemaking plants in Fujian only account for about 13 percent of the company’s total capacity.
Fujian tax authorities have claimed that the company should pay corporate income taxes because of transfer pricing problems, Feng Tay said in a filing with the Taiwan Stock Exchange earlier this week.
Transfer pricing is often used as a tool for corporate tax avoidance, indicating the allocation of the price for products and services sold among legal entities within a multinational corporation.
Feng Tay’s two subsidiaries in Fujian should be seen as subjects of taxation, as they not only manufactured shoes, but also directly received orders from clients from 2006 to 2013, the Chinese tax authorities said in a notice.
Chen rejected the claims, saying that Feng Tay’s headquarters in Yunlin County is the major operating entity that takes charge of material purchases and product sales.
For the time being, Feng Tay might reduce production at its Fujian plans and boost output at its factories in India and Indonesia, Daiwa Capital Markets Inc said in a client note on Thursday.
Vietnam accounts for about 52 percent of the company’s total capacity, while India and Indonesia contribute 23 percent and 12 percent respectively, company data showed.
Daiwa said the potential tax payment is likely to affect Feng Tay’s earnings next year by between 10 and 12 percent, although the company still targets an annual capacity increase of between 7 and 10 percent in the near future.
Feng Tay shares dropped 2.41 percent to close at NT$121.50 in Taipei trading yesterday, underperforming the TAIEX, which fell 0.36 percent.
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