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China VIEs Are Dead And We Told You So, Part II
Paul Gillis, a Professor of Accounting at Guanghua School of Management, Peking University, recently wrote an article for Seeking Alpha, entitled, VIEs Are Dead, Long Live The WFOE. In his article, Gillis posits that Variable Interest Entities are dead and that we should expect WFOEs to soon take their place. 
Gillis approvingly cites to our post, China VIEs Are Dead and We Told You So and agrees with us that VIEs will be no more and that foreign companies that are doing business in China as VIEs could be facing big problems:
Some multinationals have used the VIE structure, and for them the future may be bleak. Some foreign companies, like Amazon and Pearson, have used VIEs to circumvent foreign investment restrictions. I have heard of a few situations where VIEs were used to circumvent investment approvals and to avoid taxes. The future for multinationals that are using the VIE is likely bleak. China Lawyer Steve Dickinson [of China Law Blog] says that these VIEs will be required to either shut down or transfer their assets to Chinese entities. Those Chinese entities will have to be Chinese controlled, which likely leads to Chinese operations being deconsolidated.
The various US chambers of Commerce have asked China to provide a 25-year grace period for existing VIEs or to grandfather them completely. I think that request will be ignored in the final law. This is a great opportunity for China to bring the internet more completely under Chinese control, and to favor Chinese companies in the process. I don’t see them passing it up.
Gillis sees China opening up its internet to allow foreign companies to come in as WFOEs, thereby nullifying the need for VIEs in any event. I certainly hope that he is right about China’s plans to allow WFOEs to operate freely or even quasi-freely in China’s internet space, but I have real doubts that will happen any time soon.
What are you hearing out there?
The post China VIEs Are Dead And We Told You So, Part II appeared first on China Law Blog.
We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.
Source: http://www.chinalawblog.com/2015/05/china-vies-are-dead-and-we-told-you-so.html
