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The M&A rules recognize a deal as either an ordinary reorganization or a special reorganization, and different tax treatments apply accordingly. In terms of acquisitions, the major difference in tax treatment between ordinary and special reorganizations is the tax basis used for calculating the gain/loss from the transaction and the time point at which this gain/loss is recognized. Furthermore, according to Article 7 of the M&A rules, an acquisition between a domestic Chinese enterprise and a foreign enterprise (which in this case includes those domiciled in Hong Kong, Macao, and Taiwan) must meet one of the additional conditions below in order to qualify as a special reorganization[1]:Continue Reading China M&A Tax Issues – Installment 2: Ordinary versus Special Reorganizations in Share Deals and Asset Deals

China’s new tax law went into effect in January of 2008. This development has had important effects on tax structures used by foreign investors doing mergers and acquisitions in China. It has influenced the strategies firms employ in pursuing “enterprise reorganization” projects involving domestic Chinese enterprises, including mergers, share acquisitions, and asset acquisitions among other transaction types. In April of 2009, China’s Ministry of Finance and State Administration of Taxation ("SAT") issued Caishui [2009] No. 59 (the "M&A Rules"). Some of the most significant aspects of these new rules are described below.Continue Reading China M&A Tax Issues – Installment I: Changes in Tax Rules

On February 20, 2010, China’s State Administration of Taxation (the "SAT") issued a Notice On Interim Measures For Tax Administration Of Representative Offices Of Foreign Enterprises (Guoshuifa [2010] No. 18, also referred to as "Circular 18"). Circular 18 states measures governing enterprise income tax (EIT), business tax, and value added tax (VAT) on representative offices of foreign enterprises (including those in Hong Kong, Macau and Taiwan). It takes effect retroactively as of January 1, 2010.Continue Reading China Issues New Tax Rules For Representative Offices Of Foreign Enterprises

On January 26, 2010, the State Administration of Tax (the "SAT") issued another Notice on Issues Concerning Implementing Royalty Clauses in Tax Treaties (Guishuifa [2010] 46, also referred to as "Circular 46"), further clarifying treaty treatment for technical know-how.Continue Reading China’s State Administration Of Tax Clarifies Treaty Treatment for Technical Know-How

On October 27, 2009, the Chinese State Administration of Taxation (“SAT”) issued a Notice, "How to Understand and Determine the ‘Beneficial Owner’ in Tax Agreements" (Circular No. 601, hereinafter referred as to the “Notice”). This Notice clarifies the definition of beneficial ownership for purposes of avoiding double-taxation and appropriately reducing tax burdens.Continue Reading China Clarifies Concept of “Beneficial Owner” in Tax Agreements

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.Continue Reading Changes to China’s “Value Added Tax” as of October 2009

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.Continue Reading Multinational Companies Could Face Stricter Transfer Pricing Investigation By Chinese Tax Authorities

China’s State Administration of Taxation (“SAT”) issued a Notice on the Issues concerning the Application of Royalty Clauses in Tax Treaties (Circular No. 507, hereinafter referred to as the “Circular”) on September 14, 2009. The Circular clarifies the definition and scope of royalty clause involved in tax treaties to avoid double taxation and to prevent fiscal evasion with respect to taxes on income. It will be effective on October 1, 2009.Continue Reading China Crystallizes Royalty Clause of Tax Treaty

On August 25, 2009, China’s State Administration of Taxation (SAT) issued Administrative Rules on Nonresident Enjoying Tax Treaty Treatment (Guoshuifa 2009 No.14) ("The Rules"). The Rules provide detailed guidance for nonresidents seeking concessions (except for international traffic) provided in applicable tax treaties. The Rules will take effect on Oct 1, 2009.Continue Reading China Clarifies Nonresidents’ Eligibility For Treaty Tax Benefits

On March, 27, 2009, China’s Ministry of Finance (“MOF”), State Administration of Taxation (“SAT”) and General Administration of Customs jointly issued Notice of Some Issues related to Taxation Policies on Supporting the Development of Cultural Enterprises (the "Notice"). The Notice extends a series of tax benefits for cultural and media enterprises through December 31, 2013.Continue Reading Extended Tax Benefits for Cultural and Media Enterprises