CMS, China | Chinese Tax Regulation Update | December 2014





Hong Kong


Dear Sir or Madam,

Please find enclosed our update on the latest developments in Chinese Tax Law.

Kind regards,
CMS, China


Circular
Number
Issuance
Date
Effective
Date
Topic What is new?
SAT Decree [2014] No. 32 2014-12-2 2015-2-1 Administrative Measures on General Anti-tax-avoidance On 2 December 2014, the State Administration of Taxation (“SAT”) published the Administrative Measures on General Anti-tax-avoidance (“the Measures”). The Measures will take effect on 1 February 2015. On 12 December 2014, a press conference was held by the SAT to answer questions related to the Measures.

According to Article 47 of the PRC Corporate Income Tax Law (“the PRC CIT Law”), in case an arrangement, which lacks proper business purpose, solely or mainly aims to achieve certain tax benefits, the competent tax authority is entitled to make an adjustment based on reasonable methods. Such stipulation is normally referred to as the “general anti-avoidance rule”. Since the enactment of the PRC CIT Law on 1 January 2008, various regulations have been issued by the SAT to address specific topics under the general anti-avoidance rule. E.g. an indirect transfer of shares in a Chinese company may be regarded and taxed as an actual transfer of the shares in the Chinese company, if the off-shore intermediary holding structure lacks business substance. Similarly, a foreign company holding equity investment in China may be denied enjoying the relevant low tax treaty rate for dividends, if such foreign company lacks business substance and, therefore, does not qualify as the beneficiary owner of the dividends.

The SAT now issues the Measures to cover similar cases in a more general way. The Measures cover various topics which include the following:

  • Applicable scope of the Measures (domestic transactions are excluded).
  • Features of general anti-avoidance cases;
  • Adjustment methods;
  • Procedural requirements of general anti-avoidance investigations (SAT approval is required to launch and close a general anti-avoidance case). An English version of the press conference is available at the SAT website here.

    The Measures show the SAT’s intention to fight against tax planning (limited to cross-border transactions) which is in line with the tax law but lacks proper business reasons.

    Taxpayers as well as tax advisors shall pay close attention to the Measures. It is essential that a tax planning arrangement is supported by justifiable business rationale.

    Caishui [2014] No. 106

    2014-12-12

    2014-12-13

    Consumption Tax rates for refined oil raised

    In view of environmental protection and reduction of emissions, the SAT and the PRC Ministry of Finance raised the applicable consumption tax (“CT”) rates for refined oils starting from 13 December 2014. The adjustments are as follows:

    For gasoline, naphtha, solvent naphtha and lubricant oil, the CT rate is raised from RMB 1.12/litre to 1.40/litre.

    For diesel oil, aviation kerosene and fuel oil, the CT rate is raised from 0.94/ litre to 1.10/litre. However, CT for aviation kerosene is still temporarily exempted.

    Caishui [2014] No. 93 2014-11-25 2014-12-1 SAT abolishes consumption tax for various commodities In this tax circular, the SAT and the Ministry of Finance abolish consumption tax (“CT”) on the following commodities:

  • Motorcycles with a cylinder capacity of below 250 ML.
  • Vehicle tires;
  • Leaded gasoline; (It shall be taxed at the same CT rate as unleaded gasoline);
  • Ethyl alcohol.
    Caishui [2014] No. 79 2014-10-31

    2014-11-17

    CIT policy for QFII and RQFIIs clarified The SAT clarified CIT treatment on capital gains realised by Qualified Foreign Institutional Investors (“QFIIs”) and RMB Qualified Foreign Institutional Investors (“RQFIIs”) from equity investment in the Chinese stock markets (i.e. the Shanghai Stock Exchange and the Shenzhen Stock Exchange).

    The capital gain tax issue related to QFIIs and RQFIIs has already been pending for many years and has been criticized by international investors for not being transparent. This circular now clarifies that for capital gains realised before 17 November 2014, the relevant capital gains shall be taxed in China. However, for those capital gains realised on and after 17 November 2014, capital gain tax shall be exempted.
    Caishui [2014] No. 81 2014-10-31 2014-11-17 Export VAT refund at port of loading

    Under the newly launched Shanghai - Hong Kong Stock Market Connection Program, investors in mainland China and Hong Kong are respectively allowed to invest in the stock market of the other side (respectively the Hong Kong Stock Exchange and the Shanghai Stock Exchange), subject to certain limitations. In this circular, the SAT and the Ministry of Finance set out tax rules for income tax issues related to capital gains and  dividend income, as well as business tax issues related to such arrangement.

    In particular, for Hong Kong investors investing in shares listed on the Shanghai Stock Exchange, the following tax rules apply:

  • Capital gain tax is exempted;
  • For dividend income, 10% withholding tax applies. However, if a lower rate is applicable under the relevant double taxation treaty / arrangement, it is still possible to apply for the lower rate with the Chinese tax authorities;
  • Business tax is exempted.

    Basically, the above tax treatments are comparable to those applicable to QFIIs and RQFIIs.


    In case you have questions or for further information, please contact:

     
    Charlie Sun
    Head of Tax Practice Area Group

    CMS, China

     

    T +86 21 6289 6363
    F +86 21 6289 0731
    E charlie.sun@cmslegal.cn
     

    For previous editions of China Insight or to sign up for other topics, please visit us at www.cmslegal.cn/newsmedia/newsletter.

     


    This information is provided for general information purposes only and does not constitute legal or professional advice. Copyright by CMS, China.

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