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  "documentTitle": "Sino-Forest Corporation (TRE)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
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  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2011-06-02 00:00:00",
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  "notes": "The slide uses a narrative of legal risk and tax evasion to discredit the company's reported business model.",
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      "kind": "callout",
      "text": "Regardless, this is not what TRE is really doing. It is lying about selling such large volumes of timber to the AIs.",
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      "text": "As foreign enterprises conducting domestic business in China, TRE's BVI entities would still be subject to the PRC corporate income tax... The penalties (on top of the unpaid tax) would be 50% to 500% of the unpaid tax.",
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      "text": "In a legitimate public company, management would be summarily dismissed for using TRE's AI structure... The size of the transactions is so large that the AI management would possibly be committing offenses that could land them lifetime prison sentences.",
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      "text": "TRE would have numerous problems with the AIs trying to pay TRE's value added tax (\"VAT\"). Entering names other than the seller of the good on a VAT invoice is a tax crime... It is difficult to understand how TRE generates a 55% gross margin from the AI on standing timber sales all the while risking their lives.",
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      "text": "Because of TRE's disclosed contingent tax liability of $156.9 million, it is clear that TRE's entities... are not paying taxes themselves... Regardless, this is not what TRE is really doing. It is lying about selling such large volumes of timber to the AIs.",
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      "text": "TRE and the AIs' chances of getting away with the scheme would be low. The PRC banking system has controls in place for anti-money laundering purposes. The tax bureau is part of this platform.",
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      "text": "It is illegal for foreign companies to engage in domestic business in the PRC without having incorporated a local subsidiary... Therefore, if TRE were really using this structure for its BVI subsidiaries, they would be risking confiscation of the prior two years of their profits.",
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      "kind": "paragraph",
      "text": "On the other hand, the cure for the problems is simple. TRE, which already has over 60 wholly-owned companies in the PRC, could buy and sell timber through new or existing WFOEs... This is what practically every other foreign investor with at least $100,000 in its pocket does.",
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      "kind": "title",
      "text": "TRE May be a Great Supplier, but How Much Prison Time Would the AIs be Willing to do for TRE?",
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