China said to tax past capital gains by international funds

China plans to collect capital gains taxes from foreign money managers that invested in mainland markets during the five years through November 2014, a move that may compel funds to claw back more than USD1 billion from investors to pay the government.
Authorities plan to collect the 10 percent tax on so-called QFII and RQFII funds, according to people with knowledge of the matter who asked not to be identified as they weren’t authorized to speak publicly about the rules. The levy means managers of public QFII funds may need to claw back $1.2 billion, an amount that could triple depending on how the tax is calculated, according to research firm Z-Ben Advisors Ltd.
While the plan would saddle some funds with a one-off bill, it also brings more clarity to Chinese tax laws that have led to confusion among international investors and spurred MSCI Inc. to keep mainland shares out of its global indexes last June. Authorities in the world’s second-largest economy said three months ago that foreigners would get a “temporary” tax waiver on trades executed from Nov. 17, 2014.
“It’s a disappointment,” Ryosuke Kawahata, a Tokyo-based money manager at Mizuho Asset Management Co., which oversees about $37 billion, including QFII money, said by phone from Tokyo. “There’s not many examples around the world where you’re chased for your past tax.”
Taxes will be collected on individual transactions, and funds will be barred from consolidating gains and losses over several trades. The levies won’t apply to debt securities, while taxes on convertible bonds will only be collected after the debt is converted, the people said.  Bloomberg