(By You Yunting) In November of 2011, Apple Inc. began allowing its users in China to purchase app by RMB. At the time, the author believed that it means Apple would operate its AppStore in China. Yet unill now, the business concerning AppStore of Apple is still run by iTunes S.A.R.L.(the “iTunes”), the company registered in Luxembourg, a subsidiary of Apple Inc. Furthermore, according to the relevant International convention on transnational transaction, neither Apple nor iTunes is required to pay taxes for Chinese user’s purchase of the apps to the Chinese government. For Apple and iTunes, on one hand they take the payment in RMB, but on the other hand, they do not pay the taxes. This business model is achieved through the third party payment method. In this situation, the third party payment service provider would collect the payment from the Chinese users, and then transfer them to overseas. But this business model is at risk of violating the foreign currency control regulations of China. The following are the opinions of the author on this issue.
I. The essence of the cross border app purchase in AppStore
Currently, Chinese consumers purchase and download the app in AppStore. From the legal standpoint: individual in China buys an app from iTunes, a subsidiary of Apple. After the payment is collected by iTunes, the app would be delivered to the cell phones of the consumers, and the rights and obligations between the consumers and iTunes is regulated by the user agreement of Apple. However, because iTunes is not a company registered in China, and it carries out no business in China, it cannot open an account at a bank in China. For this reason, it collects the payment from the third party service provider PayEase. The operator of PayEase is PayEase (Beijing) Technology Co., Ltd., a company licensed by the State for online payment.
During the process of an AppStore purchase, by the experience of the author, the user could make the payment in two different ways: First, by a domestic bank card to pay RMB, which uses the third party payment method—PayEase; the other option is to pay it in US dollar through an International card issued by a domestic bank, like the cards with VISA, American Express. According to the author’s credit card statement, the entity that collects the payment is “PES*ITUNES STORE CHINA.” Judging by this name, it may be iTunes who is actually collecting the payment from the user. Of course, we cannot exclude the possibility that it is the domestic bank who is settling the payment for iTunes.
II. Legal problems for cross border payment through a third party in the purchase in AppStore.
When the payment is made by domestic bank cards, the third party service provider PayEase would have to first exchange the collected RMB into US dollar, before transferring the payment to iTunes. However, since iTunes do not have a bank account in China, the final payment must be paid through cross border exchange. Theoretically speaking, there are two ways for the cross border exchange. First, the foreign currency cross border payment, where PayEase would first exchange the RMB into US dollar and then transfer it overseas. Second, the RMB cross border payment, which means that the RMB would be directly paid to foreign countries or regions, and then exchanged overseas for the desired currency. These two ways both involve cross border payment through a third party service.
The foreign currency control in our country is very strict, and the feature of the foreign currency control law is that financial institutions can only do what is permitted by the policy. What is not stated in the policy shall all be considered prohibited. In February of 2013, the State Administration of Foreign Exchange issued the “Guiding Opinions on the Piloting of the Cross Border E-commerce Foreign Exchange Business by Payment Institution” (the “Opinions”), and launched a pilot program at five cities for third party payment service provider in E-commerce. Even this new program only included the cross border payment of foreign currency exchange, but not RMB cross border payment.
But what is surprising is that the Luxemburg registered iTunes had already begun its payment cooperation with the Chinese third party payment service provider PayEase as early as November of 2011.The RMB collected must go through cross border exchange before it can be transferred into iTunes bank account. Even more strange is that PayEase acquired its license for payment on December 22nd 2011, which is about a month after the company began providing the service to its customers.
No matter how iTunes exchange its foreign currency, once it is made through a third party service provider, it is violating the foreign currency exchange policies. For foreign currency exchange payment, although the pilot program just recently began, Apple has already been doing this for almost a year and a half. Therefore, it is without a doubt that the previous operation was in violation of the policy. For the cross-border payment of RMB, currently the policy does not allow third party service provider this right. It remains unknown to the author whether Apple and PayEase have negotiated with the authority beforehand in regards to their business cooperation, but their business model is one that most financial institutions would be afraid to follow. But for Apple or iTunes, we currently have seen no direct consequences for their action. In China, when a company decides to do this, it is usually under one of two circumstances: 1) the company has very strong support in the background; 2) the other is managing official in the supervision administration deliberately turns a blind eye to it. For iTunes case, it is not known to the author which method they have taken.
In closing, the author would like to say that the profits Apple gains from the AppStore software download is very lucrative, but we have also seen the company avoid taxation through clever measures in most countries. But the premise of tax avoidance is that the measures taken obey the law. If the measure is against China’s foreign currency policy but does not receive any punishment, the author’s only conclusion is that the policy is not implemented equally for everyone.
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You Yunting：86-21-52134918 youyunting@debund.com/yytbest@gmail.com
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