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April 25, 2014

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Grain unit staff held over tax probe

Source: Agencies | April 25, 2014, Friday | Print Edition

THREE employees at a Marubeni Corp grain trading unit in China have been detained, Chinese customs said yesterday, a move prompted by allegations of tax evasion on soybean imports.

The three worked at a Chinese unit of Marubeni’s Columbia Grain Inc, the Japanese trading house and Chinese customs in the port city of Qingdao said.

The detentions could add to recent pressure on soybean prices after a wave of soybean cargo defaults in China, where a combination of poor crushing margins and difficulty getting credit has led to a spike in rejected cargoes.

US soybean futures hit their lowest since April 14 yesterday on concerns about defaults by China, which buys more than 60 percent of global imports. The market has lost 3.5 percent in five straight losing sessions.

The customs authority in Qingdao said the three employees were being detained on suspicion of smuggling. Chinese customs sometimes use smuggling as a broader term for tax evasion.

Industry sources said the allegations could be related to discrepancies on the reported valuation of imported soybeans, which would affect customs duty and value-added tax, since both are levied based on the cargo value.

“People are wondering if the Chinese authorities are now clamping down on the use of soybeans as a form of shadow currency,” one German trader said, referring to the practice of using commodities as collateral for loans.

“This use of soybeans may have inflated Chinese soybean imports recently despite slack Chinese domestic demand.”

A source who has close business dealings with Marubeni said: “The customs received a tip-off that the company was suspected of evading taxes and smuggling by using provisional prices.”

Some industry analysts said the tip-off targeting Marubeni could be part of a ploy aimed at putting pressure on prices.

“Distressed cargoes sailing to China could then be bought by Chinese buyers at a discounted price,” said one analyst who declined to be identified.

Discrepancies in the reported valuation of imported cargo are a common occurrence in commodity trade, including soybeans, as sellers typically offer Chinese buyers a delayed pricing mechanism that allows importers to place orders based on a preliminary price. This provisional pricing would be used to calculate cargo value when making customs declarations.

Buyers are then able to fix prices based on futures prices on the Chicago Board of Trade when cargoes arrive in China or a month after arrival. This final price would be the actual valuation of the cargo.

Since US soy prices are up more than 12 percent so far this year, companies may have under-reported the actual value of the cargo, the trade source said.

China’s customs authority is familiar with the practice of delayed pricing and has provisions in place allowing companies to adjust the declared cargo value, industry sources said.

“Delayed pricing has been widely used in the industry, we don’t know how serious customs authorities will be in handling the case this time,” said a China-based trader.

Chinese buyers have threatened to default on more than 20 cargoes, not yet priced, to avoid losses in a depressed market.

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