By: Bill Ye Ma Xiaoyu King and Wood Mallensons Shanghai, China

捕获The State Administration of Taxation (“SAT”) issued Bulletin 42 on 29 June 2016 to improve administration of related-party transaction reporting and contemporaneous documentation (“Bulletin 42”). With the first wave of comment behind us, many questions have emerged. Among the controversial provisions, Article 18 stands

By Zhao Yan and Daisy Duan , King & Wood Mallesons’  Taxation Group

赵炎段桃After several rounds of revisions and consultations in the past few years, the State Administration of Taxation (“SAT”) has recently promulgated the Bulletin on Several Issues concerning the Enterprise Income Tax (“EIT”) on Indirect Asset Transfer by Non-Resident Enterprises (“Bulletin 7”)[1]. Tax matters occurred but have not been settled before 3 February 2015, the date of implementation of Bulletin 7, shall be governed by Bulletin 7. Meanwhile, the relevant provisions of Guo Shui Han [2009] No. 698 (“Circular 698”)[2] and SAT Bulletin [2011] No. 24 (“Bulletin 24”)[3] concerning indirect equity transfers shall be revoked accordingly.

In accordance with Bulletin 7, indirect transfer of China taxable assets conducted by non-resident enterprises through arrangements that do not have reasonable commercial purposes, which results in avoidance of EIT, shall be deemed as direct transfer of China taxable assets and thus subject to tax in China. As an upgrade to Circular 698, Bulletin 7 shall have profound impacts on the tax costs, investment structuring and exit plan of foreign enterprises making investments into China and of domestic enterprises setting up “red-chip” structures for overseas listings.
Continue Reading A New Milestone for Taxation on Indirect Asset Transfer by Non-resident Enterprises — A Review of the Past and Present of Bulletin 7

By Tony Dong and Alice Zhang, King & Wood’s Tax Department

It is common for multinational companies to deploy offshore holding structures or set up special purpose vehicles ("SPVs") in tax havens to make investments, enter into cross border transactions or to list their IPOs. There are various reasons for companies to utilize offshore SPVs, and tax optimization is clearly one of the top considerations. For example, a company may take advantage of preferential tax treaty provisions or align profits to a low-tax jurisdiction or tax haven. However, in recent years, governments around the world have been tightening their tax administration of cross-border tax avoidance arrangements with TPG’s recent tax dispute in Australia is the latest example. The Chinese government has been actively involved in the game, and the State Administration of Taxation ("SAT") has issued a series of regulations in 2009 to strengthen tax scrutiny on non-residents.

Continue Reading China Weaves a Tax Net over Offshore SPVs