Sources

Chinese Couples Looking To Duck New Property Taxes Opt For Divorce

This is an innocent conversation in Beijing. Others, maybe not so much?
This is an innocent conversation in Beijing. Others, maybe not so much?
Chen Wenya

BEIJING - To stem surging housing prices and curb speculation, China has recently issued a new policy that enables local governments to impose a 20% tax on profits earned from the sale of a second home.

This is a huge hike from the current 1-2% tax. The move immediately triggered panic among the affluent class -- and almost just as quickly, creative ways to avoid the tax. The most popular method? Well, get a divorce.

Chen Xu, a Beijing lawyer, says that he has been receiving more and more phone calls about the feasibility of getting divorced without actually leaving your spouse and home, that is, faking a divorce.

Mrs. Ma is one of the Beijing residents anxious about whether or not she should get divorced before the new tax rules come into effect. Mrs. Ma and her husband own two apartments together, but they want to sell one of the apartments to buy a new one in a better school district. The prices of the two apartments they bought quite cheaply more than five years ago have increased four and five-fold, which means they would pay a huge amount of property tax on them. However, if the couple gets “divorced,” they could each own one apartment and avoid paying the 20% capital gains tax.

Fake divorces are nothing new in China – the phenomenon started appearing a few years ago when some Chinese cities introduced measures to restrict home ownership to one per couple. "Before it was only the buyers who needed to get divorced whereas now it applies also to the couples wanting to sell," said Mrs. Ma.

A million sham divorces

Professor Xie Baisan from Fudan University says the phenomenon first appeared in 2009, when couples tried to avoid paying much higher interest rates on mortgages taken out for the purchase of second homes. He believes the new housing policy could lead to one million fake divorces in China.

Most often these couples have a proviso in their divorce agreement stating that they still live together. Some will even remarry once the mortgage has been taken out or the property tax has been paid.

Professor Xie understands why getting a fake divorce is so popular. "The housing price in Shanghai’s good school district has gone up eight to tenfold in the last decade. Instead of paying 70 Yuan ($11) to get divorced and another 70 Yuan to be remarried, you would be insane to want to pay hundreds of thousands in property tax,” he says.

Chen Xu doesn’t agree with Professor Xie. He says that getting a fake divorce involves great legal risks. If the couple does end up separating for real, one of the spouses could end up losing his or her share of the jointly owned assets. Also, he says, the act of divorce can be emotionally and psychologically damaging.

According to Chen Xu, the government needs to review its housing policy to curb the phenomenon. For instance, he says, couples who sell their second homes to improve their primary residences should not be punished.

Shi Jie, a lawyer who is also a member of the China’s consultative assembly, the CPPCC, believes that if there are no penalties for breaking the law – i.e. getting a fake divorce – then the law will stop being effective. He says such behavior should be punished or that China’s credit system should be adapted to this new reality. In effect, poor credit ratings could be implemented for people who commit “policy divorces,” and this rating could impact employment, loans and medical care.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!
Geopolitics

"The Truest Hypocrisy" - The Russia-NATO Clash Seen From Moscow

Russia has decided to cut off relations with the Western military alliance. But Moscow says it was NATO who really wanted the break based on its own internal rationale.

NATO chief Stoltenberg and Russian Foregin Minister Lavrov

Russian Foreign Ministry/TASS via ZUMA
Pavel Tarasenko and Sergei Strokan

MOSCOW — The Russian Foreign Ministry's announcement that the country's permanent representation to NATO would be shut down for an indefinite period is a major development. But from Moscow's viewpoint, there was little alternative.

These measures were taken in response to the decision of NATO on Oct. 6 to cut the number of personnel allowed in the Russian mission to the Western alliance by half. NATO Secretary-General Jens Stoltenberg said the removal of accreditations was from eight employees of the Russian mission to NATO who were identified as undeclared employees of Russian intelligence." We have seen an increase in Russian malicious activity for some time now," Stoltenberg said.


The Russian Foreign Ministry called NATO's expulsion of Russian personnel a "ridiculous stunt," and Stoltenberg's words "the truest hypocrisy."

In announcing the complete shutdown in diplomacy between Moscow and NATO, the Russian Foreign Ministry added: "The 'Russian threat' is being hyped in strengthen the alliance's internal unity and create the appearance of its 'relevance' in modern geopolitical conditions."

The number of Russian diplomatic missions in Brussels has been reduced twice unilaterally by NATO in 2015 and 2018 - after the alliance's decision of April 1, 2014 to suspend all practical civilian and military cooperation between Russia and NATO in the wake of Russia's annexation of Crimea. Diplomats' access to the alliance headquarters and communications with its international secretariat was restricted, military contacts have frozen.

Yet the new closure of all diplomatic contacts is a perilous new low. Kommersant sources said that the changes will affect the military liaison mission of the North Atlantic alliance in Moscow, aimed at promoting the expansion of the dialogue between Russia and NATO. However, in recent years there has been no de facto cooperation. And now, as Foreign Minister Sergey Lavrov has announced, the activities of the military liaison mission will be suspended. The accreditation of its personnel will be canceled on November 1.

NATO told RIA Novosti news service on Monday that it regretted Moscow's move. Meanwhile, among Western countries, Germany was the first to respond. "It would complicate the already difficult situation in which we are now and prolong the "ice age," German Foreign Minister Heiko Maas told reporters.

"Lavrov said on Monday, commenting on the present and future of relations between Moscow and the North Atlantic Alliance, "If this is the case, then we see no great need to continue pretending that any changes will be possible in the foreseeable future because NATO has already announced that such changes are impossible.

The suspension of activities of the Russian Permanent Mission to NATO, as well as the military liaison and information mission in Russia, means that Moscow and Brussels have decided to "draw a final line under the partnership relations of previous decades," explained Andrei Kortunov, director-general of the Russian Council on Foreign Affairs, "These relations began to form in the 1990s, opening channels for cooperation between the sides … but they have continued to steadily deteriorate over recent years."

Kortunov believes the current rupture was promoted by Brussels. "A new strategy for NATO is being prepared, which will be adopted at the next summit of the alliance, and the previous partnership with Russia does not fit into its concept anymore."

The existence and expansion of NATO after the end of the Cold War was the main reason for the destruction of the whole complex of relations between Russia and the West. Today, Russia is paying particular attention to marking red lines related to the further steps of Ukraine's integration into NATO. Vladimir Putin's spokesman Dmitry Peskov previously stated this, warning that in response to the alliance's activity in the Ukrainian direction, Moscow would take "active steps" to ensure its security.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!
THE LATEST
FOCUS
TRENDING TOPICS
MOST READ