Chinese Government Benefits From Alibaba Group Holding Ltd (BABA) Lockup Expiration: How?

Overstatedphrase in the articles for the last 6 months must bethat Alibaba Group Holding Ltd (NYSE:BABA) had a very successful/record breaking IPO in United States. Six month post lock-up period got expired on Wednesday, which allowed insiders to sell around 437 million or 18% of Alibaba Group Holding Ltd (NYSE:BABA) shares. A ‘Reuters’ article discuss about how this lockup expiration might benefit the Chinese Government.

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Alibaba Group Holding Ltd (NYSE:BABA) has not disclosed the shareholders information subjected to the lockup expiration. But, it should be safe to assume that majority of the insiders must be from China, where more than 22000 employees work for Alibaba Group Holding Ltd (NYSE:BABA). 18% of Alibaba Group Holding Ltd (NYSE:BABA) shares equals $37 billion at the price the stock closed on Friday.

Chinese government are eagerly looking to collect the taxes from Alibaba Group Holding Ltd (NYSE:BABA)’s Chinese employees, who might earn a lot from this lockup expiration. Older Chinese laws might allow the employees to escape from tax, but the government has tightened the rules and are keeping tab on Alibaba Group Holding Ltd (NYSE:BABA) employees to collect the taxes.

“The tax officials are smart enough to know that there should be money coming in, and over the last few years the SAT has been targeting equity income,” Jack Chu, Partner in China Tax Practice at PwC was quoted as saying about Chinese State Administration of Taxation (SAT) in the Reuters article.

According to the Reuters article, Alibaba Group Holding Ltd (NYSE:BABA) spokesman played safe by saying that it is individuals responsibility to reporting the profits from share sales and paying taxes. The article also stated the spokesman statement that the company had already registered its stock incentive plan with State Administration of Foreign Exchange (SAFE). SAFE basically controls the cash flow in and out of China.

One more Lockup expiration is expected in September, which will be more larger that the one happened on Wednesday. Although the tax gains for Chinese government might be very less when compared to the overall tax, but this shows that the Chinese government is getting strict on the taxes.

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