What tax exemption rules did the misclassification help Bank of China exploit?

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Bank of China Exploited Tax Exemptions by Misclassifying Private Equity Funds

The Bank of China circumvented tax obligations by reclassifying 11 private equity funds as public funds, thereby enabling them to benefit from tax exemptions. This manoeuvre involved employees contributing small amounts, between 1 and 100 yuan each, to facilitate the packaging of these funds. The bank is reported to have evaded 2.4 billion yuan in taxes between April 2023 and August 2025 through this method.
Misclassification Strategy for Tax Benefits

The core of the Bank of China's tax evasion strategy involved altering the classification of its private equity funds. By presenting these funds as public funds, the bank sought to leverage the tax preferential treatment typically afforded to public investment vehicles. This action allowed the bank to avoid tax liabilities that would ordinarily apply to private equity structures.
Employee Involvement in Fund Packaging

To execute this reclassification, the Bank of China enlisted its employees to participate in the process. Each employee was asked to contribute a nominal sum, ranging from 1 to 100 yuan. These contributions were instrumental in the operational packaging of the 11 private equity funds, creating the appearance of them being public funds for regulatory and tax purposes.
Scale of Tax Evasion

The National Audit Office's report indicates that this scheme resulted in significant tax evasion. Between April 2023 and August 2025, the Bank of China is accused of evading a total of 2.4 billion yuan in taxes. This figure underscores the substantial financial impact of the misclassification strategy employed by the institution.
Broader Audit Findings

The audit report also highlighted other financial irregularities within China's state-owned banking sector. The Agricultural Bank of China was cited for illegally issuing 11 billion yuan in loans, with some of these funds subsequently being misused for purchasing wealth management products and repaying existing debts. China Everbright Group also faced criticism for management deficiencies and a lack of subsidiary control.

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What tax exemption rules did the misclassification help Bank of China exploit?

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