Caixin
Aug 10, 2010 11:17 AM

The Fabricated High-Tech Boom

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In order to promote technological innovation, three government agencies introduced the High-tech Enterprise Certification Management Policy (High-tech Policy) in 2008. The Ministry of Science and Technology (MOST), Ministry of Finance and the State Administration of Taxation jointly introduced a tax incentive policy to companies with a high-tech certification. From the standard 25 percent corporate tax rate, the tax for high-tech companies was slashed to 15 percent.

After the policy took effect, middlemen agencies that collected fees on the new application process sprouted across the country overnight. The number of agencies in Beijing reached 300, the most in the country. The Yangtze and Pearl River Deltas came in second to Beijing. A cottage industry emerged as a result of the policy adjustment, including accounting firms, law firms, intellectual property firms and various consulting firms. These firms offer professional services not only to handle the application process for high-tech companies, but also help fabricate conditions for clients to gain certification.

And along with the arrival of the 10 percent tax reduction was the birth of "false high-tech companies."

An official at the MOST who asked to remain anonymous said, "At least 50 percent of the companies that have already received high-tech certification are not truly qualified. They were certified under falsified materials."

Faked Background

According to the High-tech Policy, to obtain certification, companies must meet six requirements. For example, the company must own the intellectual property of the core technology for its main products or services; more than 30 percent of the company's workforce must hold university degrees, and 10 percent of the employees must work in research and development department; and the company's research and development budget must account for three to six percent of its total sales.

Senior tax lawyer Liu Tianyong told Caixin that since the Corporate Income Tax Law was implemented on January 1, 2008, domestic and foreign companies have lost all room for tax breaks. The High-tech Policy filled this gap, and encouraged companies to become certified. Currently, nearly 20,000 companies have received certification and approximately 70 percent of them achieved it from the help of agencies. Caixin found that several agencies accepted nearly every company that walked through its doors. "If you don't meet the conditions, we'll create the conditions. Whatever you lack, we can help you fix it," said one agency owner.

In Guangzhou, one agency claimed to have connections with the national and local ministries of science and technology. They boasted that since 2008, they have helped more than 10 companies receive certification successfully each year. In a telephone call, the representative at this agency said that intellectual property was the most difficult condition to apply. He added, "The rest is simple. All the other requirements can be adjusted to suit the application." But even for intellectual property, this agency claimed it could source an idea unique enough for qualification. "We can help a company buy a patent. Depending on the situation, it only costs between 10,000 yuan and 100,000 yuan."

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