Celebrities and influencers are being fined for ostensible tax evasion, widening the scope of China’s clampdown on the wealthy.
Recent steps to wipe key mainland live-streamers from Chinese e-commerce sites for tax evasion have an unintended consequence. They are making life increasingly difficult for wealth managers.
The ongoing crackdown on the wealthy had appeared to mostly hit real estate and tech entrepreneurs this year and last - but a concerted effort appears to be underway to significantly widen the scope to include celebrities and influencers.
Not only do all these steps shrink the long-term client base for the wealth management sector – they also make it that much harder to bank them.
Record Fine
As reported in the South China Morning Post, the tax authorities have been cracking down on live-streaming stars since the end of November, with Viya, one of the top influencers herself being fined a record $210 million for tax evasion.
Now, according to the newspaper, the tax offices in wealthier regions have sent notices out with a ten-day deadline for celebrities and influencers to pay outstanding taxes, correct filings, or face «severe punishment».
Other influencers caught by the crackdown include Zhu Chenhui and Lin Shanshan, whose accounts were wiped from the Taobao e-commerce site and TikTok sister app Douyin after both were fined for evading taxes, according to the SCMP.
Future Implications
In short, things are getting complicated.
It would be a tough sell for a banker to onboard someone recently convicted and fined for tax evasion, particularly someone with a very significant public profile. Just the paperwork involved in getting some form of tax certification after a fine is likely scare everyone but the hardiest of bankers away.
And if a wealth manager is currently banking anyone recently fined, that news itself should prompt a look at the overall relationship again, with anything on the scale of Viya’s fine likely enough to trigger a so-called “event-driven review”, as many in the industry term it, for even the wealthiest of billionaires.
Endless Paperwork
The same things hold true for any real estate developer or tech entrepreneur, particularly if they are facing sudden financial difficulties or significantly changed expectations.
Given how the wide the scope of the crackdown has become, it seems likely that it will hit some wealth management clients, current ones and prospects.
That by itself would be enough to choke the operations and back offices with paperwork in any medium-sized wealth manager for the foreseeable future.
One More Thing
There is another catch too.
When the next periodic or annual client review comes up, it will be very hard to come up with a validated set of source of wealth and source of funds documents for influencers without any kind of online presence.
