VATS Liquor Stores, a Chinese distributor whose portfolio includes Penfolds and leading Bordeaux estates, swung to a first-half loss after two subsidiaries registered in Tibet incurred RMB127.09 million(US$18.97million） in back taxes and late-payment charges.
The bill adds a financial setback to a business already grappling with falling sales. But it also raises a question less familiar to overseas wine suppliers: why are two important operating subsidiaries based in Tibet, thousands of kilometers from the eastern Chinese markets that generate the largest share of the group’s revenue?
Tax incentives form part of the backdrop. Both subsidiaries have benefited from preferential corporate income tax treatment in Tibet. What remains undisclosed is whether those incentives had anything to do with the payment.
VATS has not identified the taxes involved or explained the policy issue in its stock exchange announcement. It says the amounts have been paid in full and that the matter involved no administrative penalty.
A costly setback amid falling sales
Listed on the Shenzhen Stock Exchange, VATS sells baijiu, wine, imported spirits and beer through stores, supermarkets, corporate sales and e-commerce. Its imported wine business includes Penfolds and Bordeaux names such as Lafite, Margaux and Latour, making it a route to Chinese consumers for international producers.
In a June 22 announcement, VATS said two wholly owned subsidiaries – Huazhi Boutique Wine Trading and Tibet Zhongtang Dehe – had identified additional tax liabilities through a self-review.
Huazhi Boutique owed RMB71.69 million(US$10.70 million), including late-payment charges, while Tibet Zhongtang owed RMB55.40 million(US$8.27 million). Together, the payments comprised RMB78.47 million (US$11.72 million) in taxes and RMB48.62 million (US$7.26)million in late-payment charges. The latter accounted for about 38% of the total.
VATS said the expense would be recognized in its 2026 results. It did not classify the matter as a prior-period accounting error and said earlier financial statements would not be restated.
The impact was substantial. As we have reported, its fFirst-half revenue fell 17.72% to RMB3.25 billion, while the company reported a net loss attributable to shareholders of RMB73.45 million. It identified the tax payments and associated charges as the main reason for the reversal into loss.
The underlying picture was less severe than the headline loss suggests. Net profit attributable to shareholders after excluding nonrecurring items rose 18.72% to RMB39.15 million.
That measure excludes more than the tax expense alone, but the distinction matters: the reported loss should not be read simply as a measure of deteriorating drinks demand. Revenue was falling, while an exceptional expense compounded the pressure on earnings.
Why Tibet matters
The subsidiaries are significant parts of VATS’ business, rather than minor regional outposts.
Its 2025 annual report identified Huazhi Boutique and Tibet Zhongtang as the only major subsidiaries meeting its disclosure threshold for an impact of more than 10% on group net profit.
Earlier prospectus disclosures described Tibet Zhongtang, established in 2013, as handling purchases of leading baijiu brands, including Moutai and Wuliangye. Huazhi Boutique served major retail accounts, supermarkets, corporate buyers and end customers. It generated more than RMB1.6 billion in revenue in 2025.
The group’s biggest sales market, however, lies elsewhere. Eastern China accounted for RMB2.44 billion, or 41.35%, of VATS’ RMB5.90 billion revenue in 2025.
The geographic gap illustrates a distinction between where a distributor sells its products and where it locates the entities that purchase, invoice or distribute them.
Tibet offers preferential tax treatment to qualifying businesses. Eligible companies in encouraged industries under China’s western development policies can pay corporate income tax at 15%. Qualifying businesses can also receive an exemption from the portion of corporate income tax revenue allocated to the regional government.
There has also been direct financial support. VATS’ 2024 interim report disclosed that Tibet Zhongtang received RMB8.48 million in enterprise support funding from the Lhasa Economic and Technological Development Zone that April. Another subsidiary, Tibet Huajun Supply Chain, received RMB8.65 million.
These incentives help explain Tibet’s appeal as a place to establish a business. They do not establish why VATS chose to locate these particular subsidiaries there, or why additional taxes became payable.
Registration alone is not enough
The payments come as Tibet has clarified the requirements businesses must meet to qualify for relief on the locally allocated portion of corporate income tax.
A notice issued by regional finance and tax authorities on May 15, effective from Jan. 1, 2026, requires qualifying companies to have substantive operations. The criteria cover business activities, personnel, accounting and assets. Authorities said the rules aim to prevent shell companies from improperly receiving tax benefits.
For a national distributor, however, selling mainly outside Tibet does not by itself demonstrate a failure to meet those requirements. The rules also consider where a business is substantively managed and controlled; the location of its customers is not the sole test.
No public evidence cited in the company’s disclosures establishes that the RMB127.09 million payment resulted from a failure to satisfy the new requirements. Its continued disclosure of the tax benefits in its interim report also means the payment cannot simply be described as the withdrawal of those concessions.
The explanation remains incomplete
A June 24 report by Chinese financial outlet Yema Financial, republished by Jiemian News, attributed the company’s explanation to a misunderstanding of how tax policy applied. The report said the issue concerned earlier operating periods, but that VATS declined to identify the years or disclose details of the policy disagreement. It also reported the company’s assurance that normal operations would not be disrupted.
That explanation goes beyond the June 22 announcement, but leaves the central questions unanswered: which taxes were involved, which periods they covered and how the late-payment charges accumulated to nearly RMB49 million.
For overseas producers assessing Chinese distribution partners, the case shows why falling revenue and exceptional costs need to be examined separately. VATS’ sales contraction reflects commercial pressure; its tax payment introduces a separate question about liabilities within the entities handling its business.
The payment is settled. The reason for it remains only partially explained.
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