Authored by: Zhang Suqiang and Huang Ling
During corporate restructuring and certain cross-border equity transactions, such as the set-up or dismantling of “red-chip” structure, a frequently encountered tax issue is whether non-resident enterprises are entitled to “special tax treatment” for cross-border equity transfers so that a tax deferral applies. Thus, the interpretation and application of the “specific conditions” as stipulated by tax law comes to be an unavoidable issue. With the implementation of the tax administration reform of “delegating power, improving regulation, and providing services”, “special tax treatment” no longer requires prior approval by tax authorities; instead, taxpayers are required to make self-assessments, and subsequently make self-reports or filings, and the tax authorities supervise through post-transaction administration. This requires a much better understanding and implementation by enterprises of tax policies, and brings greater challenges, even exposes them to the risk of overdue taxes and late payment interests, thus causing significant “concerns” for corporate restructuring. This article, based on our practical observations, provides insights on how to evaluate the controversial issue of “changes in future withholding tax burdens” to determine the applicability of “special tax treatment” for non-resident enterprise restructuring.