China Law Update : China Business Law Lawyers & Attorneys : Sheppard Mullin Law Firm : Direct Investment, Dispute Resolution, Intellectual Property, Antitrust, Venture Capital

In October, 2009, two regulations were issued regarding value added tax (VAT) treatment in China. One regulation clarifies the value added tax (VAT) treatment of certain asset reorganizations between publicly traded companies (PTC) and their holding companies. The other exempts foreign-owned research and development (R&D) centers from taxes on imports of listed equipment and grants foreign and Chinese-owned R&D centers full VAT refunds on purchases of certain domestically made equipment.

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On September 22, 2009, China made its last-minute appeal of the August 12, 2009 World Trade Organization ("WTO") panel ruling on Chinese publication and entertainment distributions restrictions, invoking "public morals" as a defense. The case was brought to the WTO by the United States in April 2007, attracting extensive attention from both sides. The appeal again escalates the trade tensions between the two partners, following the United States' imposition of tariffs on tires from China and appeal of another WTO ruling on China's protection and enforcement of intellectual property rights.

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In the beginning of 2009, the Chinese government set a target for annual tax growth of 8.2%. Due to the financial crisis, tax revenue has dropped 10.3% in the first quarter and 6% in the first half of the year compared with the same periods of last year. Therefore, China’s State Administration of Taxation ("SAT") has started to put more emphasis on tax inspection. Tax inspection is a regular function for the SAT, and a common practice internationally. But now China is expanding its scope.

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