Beijing Hairun Tianrui law firm
On matters related to individual income tax withholding on redemption of Jointown Pharmaceutical Group Co.Ltd(600998) convertible corporate bonds
Legal opinion
To: Jointown Pharmaceutical Group Co.Ltd(600998)
Beijing Hairun Tianrui law firm (hereinafter referred to as “the firm”) has accepted the entrustment of Jointown Pharmaceutical Group Co.Ltd(600998) (hereinafter referred to as “the company”) to express legal opinions on the legality and compliance of the company’s due redemption of convertible corporate bonds involving the withholding of individual investor interest income tax, In accordance with the law of the people’s Republic of China on the administration of tax collection (hereinafter referred to as the law on the administration of tax collection) The individual income tax law of the people’s Republic of China (hereinafter referred to as the individual income tax law) and other relevant laws and regulations and the prospectus for the public offering of convertible corporate bonds (hereinafter referred to as the prospectus) have issued the following legal opinions on withholding the income tax on interest income of individual investors:
1、 Determination of the redemption price of the bonds
On January 15, 2016, the company publicly issued 15 million convertible corporate bonds, the securities are referred to as “Kyushu convertible bonds”, the bond code is “110034”, the face value of each is 100 yuan, the total amount is 1.5 billion yuan, and the term is 6 years, i.e. from January 15, 2016 to January 14, 2022. According to the provisions of the prospectus, within five trading days after the maturity of the convertible bonds issued this time, the company will redeem the convertible bonds that have not been converted into shares at the price of 108% of the face value of the bonds (including the last interest). The “Kyushu convertible bonds” will expire on January 14, 2022. According to the stock listing rules of Shanghai Stock Exchange and other regulations, the trading of “Kyushu convertible bonds” will be stopped 10 trading days before the expiration.
According to “(XIV) redemption terms” of Article 2 “basic information of this issuance” under Section II “overview of this issuance” in the prospectus, within five trading days after the maturity of the convertible bonds issued this time, the company will redeem all the convertible bonds that have not been converted to shares from the investors at the price of 108% of the face value of the bonds (including the last interest), Therefore, the due cashing amount of “Kyushu convertible bonds” is 108 yuan / piece (including tax). In addition, according to the provisions of “(VI) bond interest rate” in Article 2 “basic information of this offering” under Section II “overview of this offering” in the prospectus, “The coupon rate of convertible bonds issued this time is 0.2% in the first year, 0.4% in the second year, 0.6% in the third year, 0.8% in the fourth year, 1.6% in the fifth year and 2% in the sixth year” and “(VII) interest payment” in Article 2 “basic information of this issuance”, The annual interest amount enjoyed by the holders of the convertible bonds is the product of the total face value of the convertible bonds held by the holders of the convertible bonds in the interest bearing year (hereinafter referred to as “the current year” or “each year”) and the face interest rate of the convertible bonds in the current year, and the interest is paid once a year. Therefore, the annual interest amount of each “Kyushu convertible bond” in the sixth year is 100 * 2% of its face value, that is, RMB 2. According to the relevant provisions of the prospectus, of the 108 yuan of the due cashing amount of each “Kyushu convertible bond”, 2 yuan is the current interest, and 106 yuan is the redemption price including the investment principal agreed with the “Kyushu convertible bond” investor at the time of issuance.
2、 Legal provisions on withholding individual income tax this time
Article 3 of the law on the administration of tax collection stipulates that the initiation and cessation of tax collection, as well as the reduction, exemption, refund and supplement of tax shall be implemented in accordance with the provisions of the law. If the law authorizes the State Council to make provisions, it shall be implemented in accordance with the provisions of the administrative regulations formulated by the State Council. Article 2 of the individual income tax law stipulates that individual income tax shall be paid on the following individual income: (I) income from wages and salaries; (II) income from remuneration for labor services; (III) income from royalties; (IV) income from royalties; (V) operating income; (VI) income from interest, dividends and bonuses; (VII) income from property leasing; (VIII) income from property transfer; (IX) incidental income. Where a taxpayer obtains income from items 5 to 9 of the preceding paragraph, individual income tax shall be calculated separately in accordance with the provisions of law. The difference between the redemption price of RMB 106 per Kyushu convertible bond issued by the company and the par value does not belong to “income from interest, dividend and bonus”. If the individual income tax is calculated according to “income from property transfer”, According to the regulations on the implementation of the individual income tax law of the people’s Republic of China: “income from the transfer of securities, equity, property shares in the partnership, real estate, machinery and equipment, vehicles and ships and other property by individuals shall be calculated and taxed according to the balance of the income from the transfer of property minus the original value of the property and reasonable expenses,” and “income from property transfer” The tax basis of is “income minus the original value of property and reasonable expenses”, that is, the difference between 106 yuan and the cost held by the holder (and the holding cost of each convertible bond holder may be different), rather than the difference between 106 yuan and the face value of the convertible bond. The notice of the Ministry of Finance and the State Administration of Taxation on the continued temporary exemption of individual income tax on individual income from stock transfer (Cai Shui Zi [1998] No. 61) stipulates that individual income tax shall continue to be temporarily exempted from individual income tax on individual income from stock transfer of listed companies. Convertible corporate bonds are bonds that the bondholders can convert the bonds into the company’s common shares at the price agreed upon at the time of issuance. For many years, the trading balance of convertible corporate bonds has been exempted from individual income tax with reference to “income from individual transfer of shares of listed companies”. Laws and regulations do not explicitly require the payment of individual income tax on the redemption price of convertible bonds (excluding interest), that is, the difference between the investment principal and face value.
According to the relevant provisions of the prospectus, of the 108 yuan of the due cashing amount of each “Kyushu convertible bond”, 2 yuan is the current interest. Individual investors shall pay individual income tax on the interest income generated from investing in convertible bonds.
According to the statement on interest income tax of convertible corporate bonds issued by the company, “Individual investors of corporate convertible bonds shall fulfill their tax obligations. According to the relevant provisions of the company’s prospectus, the company will pay 108% of the face value of the bonds (including 2% of the coupon rate of the last year) For the redemption of convertible bonds without conversion of shares at the price of, the income tax on the interest part will be uniformly withheld and paid by each cashing institution at the tax rate of 20%, that is, the actual distribution amount of each convertible bond with a face value of RMB 100 is RMB 107.6 (after tax). If the obligation of withholding and payment is not fulfilled, the legal liability arising therefrom shall be borne by each cashing institution. “
3、 Concluding observations
Our lawyers believe that the company will redeem the convertible bonds without conversion at the price of 108% of the face value of the bonds (including the face interest rate of the last year of 2%), and the individual income tax on the interest part will be uniformly withheld and paid by each cashing institution at the tax rate of 20%, that is, the actual distribution amount of each convertible bond with a face value of RMB 100 is RMB 107.6 (after tax), The handling method is consistent with the provisions of the prospectus, does not violate the provisions of laws and regulations, and does not harm the interests of small and medium-sized investors.
(no text below this page)
