Comprehensive Tax Analysis of Pop Mart in the USA

Understanding Pop Mart’s Tax Landscape in the USA

Tax Incentives and Government Support

1. Tax Relief During the Pandemic

In the early days of the COVID-19 pandemic in 2020, the Chaoyang District Tax Bureau in Beijing crafted a report analyzing the impact of the new cultural industry on businesses like Pop Mart. This pivotal document helped facilitate the implementation of tax and fee relief policies aimed at aiding companies facing challenges such as supply chain disruptions and store closures. By leveraging big data analysis, the bureau effectively ensured the precise enforcement of temporary reductions in social security contributions and value-added tax incentives, enabling Pop Mart to navigate through the crisis and achieve unexpected growth.

2. Streamlined Tax Services

Tax authorities have introduced initiatives such as online tax filing and paperless reporting to enhance the tax processing experience for businesses. With 99% of tax declaration activities now conducted online, efficiency has seen a remarkable uptick, aiding in quicker cash flow. Additionally, the Chaoyang District Tax Bureau regularly conducts specialized tax analyses to provide cultural enterprises, including Pop Mart, with vital policy decision-making support for compliant development.

International Tax Structure and Optimization Strategies

1. Offshore Structure Design

Pop Mart has established a complex multi-layered structure involving BVI, Cayman Islands, Hong Kong, and mainland entities:

• BVI Company: Used for shareholding purposes and information confidentiality, reducing cross-border capital flow restrictions.
• Cayman Entity: Serves as the primary listing entity, consolidating global shareholder rights.
• Hong Kong Company: Capitalizes on tax treaties between mainland China and Hong Kong, lowering the withholding tax rate on profit distributions from 10% to 5%, significantly optimizing tax obligations.

2. Global Tax Coordination

Utilizing the Hong Kong company to manage overseas profit distribution, Pop Mart adjusts profit allocation according to varying national tax policies. For instance, in the European market, the company has set up regional headquarters in low-tax jurisdictions like Luxembourg, effectively lowering its overall tax rate. Notably, while total income tax expenditure is projected to rise to 1.0575 billion yuan in 2024, the actual tax rate has only marginally increased from 23.1% to 24.2%, underscoring the effectiveness of its tax planning.

Transfer Pricing and Cross-Border Compliance

1. Transfer Pricing Model

Pop Mart has assembled a dedicated team to manage transfer pricing at the group level. This team analyzes the contributions of various participants in the value chain to align the reasonableness of intercompany transactions. By modifying profit allocation across the design, production, and sales stages, Pop Mart strives to balance the tax burdens in different countries.

2. Addressing International Tax Risks

To help businesses mitigate risks associated with overseas taxation, the Chaoyang District Tax Bureau offers “International Tax Information” and live cross-border coaching. For example, local IP collaborations in Southeast Asia have been guided by tax authorities to ensure compliance regarding copyright revenues and cross-border payments.

Tax Compliance Challenges and Solutions

1. Risks Arising from Smuggling Activities

The high premium on limited-edition blind boxes has led to an increase in smuggling activities, resulting in value-added tax (13%) and customs duties (6-10%) evasion. To counteract this, Pop Mart has tightened supply chain controls and adjusted limited-edition strategies, effectively reducing the circulation of gray market goods and working closely with customs to lessen joint liability risks.

2. Overseas Tax Compliance

As Pop Mart continues to expand rapidly overseas, establishing 43 outlets in Europe and 80 in Southeast Asia, its tax team faces the challenge of navigating the diverse tax systems of various countries. Adapting to these differences is crucial to maintaining compliance and ensuring continued growth.

Conclusion

Pop Mart’s adept handling of its tax obligations—through effective use of government support, intricate international tax strategies, and proactive compliance measures—highlights the complexities businesses face in an increasingly globalized economy. As it continues to innovate and expand, its approach sets a noteworthy example for other companies navigating similar challenges in the dynamic landscape of international business.