CMS, China | Chinese Tax Regulation Update | August 2022





CMS, China

Dear Sir or Madam,

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

Kind regards,
CMS, China

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SAT Announcement [2022] No. 16

2022-08-01 2022-09-01 Effectiveness of the Multilateral Instrument ("MLI") applicable to double taxation treaties ("DTTs") for preventing Base Erosion and Profit Shifting ("BEPS") in China On May 25, 2022, China submitted the rectification for the MLI to General Secretary of the OECD. The MLI entered into force in China on September 1, 2022 and applies to 47 DTTs signed by China for the time being. The MLI is applicable to the withholding taxes of non-PRC tax residents of the matters occurring from January 1, 2023 and to other taxes levied for the tax periods starting from or after March 1, 2023.

China has applied two types of recommendations of the BEPS Action Plans, namely the minimum standard BEPS clauses and other BEPS recommendations which have usually been included in the DTTs signed by China in recent years.

According to the Full List of the Final Reservations and Notifications of the PRC Government on the MLI, the following notifications have been made:  

100 DTTs (including the associated protocols) ("Covered Tax Agreements") are covered by the MLI.
   
All the 100 Covered Tax Agreements contain Item 2 of Article 4 – Dual Resident Entities.
   
China chooses to apply Item 3 of Article 6 – Purpose of a Covered Tax Agreement.
   
All the 100 Covered Tax Agreements which already contain the preamble contents in Item 2 of Article 6 do not fall within the scope of reservation provided in Item 4 of Article 6.
   
The preamble of all the 100 Covered Tax Agreements do not contain the contents relating to the development of economic relationship or the enhancement of cooperation in tax matters.
   
18 listed Covered Tax Agreements which contain the stipulations in Item 2 of Article 7 - Prevention of Treaty Shopping do not fall within the scope of reservation provided in Item 15.2 of Article 7.
   
37 listed Covered Tax Agreements which contain the stipulations in Item 1 of Article 8 – Dividend Transfer Transactions do not fall within the scope of reservation provided in Item 3.2 of Article 8.
   
81 listed Covered Tax Agreements contain the stipulations in Item 1 of Article 9 - Capital Gains from Alienation of Shares or Interests of Entities Deriving their Value Principally from Immovable Property.
   
1 listed Covered Tax Agreement (i.e., the protocol of Sino-US DTT) contains the stipulations in Item 2 of Article 11 - Application of Tax Agreements to Restrict a Party’s Right to Tax its Own Residents.
   
2 listed Covered Tax Agreements (i.e., the Sino-Italian DTT and the Sino-Turkish DTT) contain the case referred to in the first sentence of Item 1 of Article 16 – Mutual Agreement Procedure, but such case must be presented within a specific time period that is shorter than three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Covered Tax Agreement.
   
96 listed Covered Tax Agreements contain the case referred to in the first sentence of Item 1 of Article 16, but such case must be presented within a specific time period that is at least three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Covered Tax Agreement.
   
1 listed Covered Tax Agreement (i.e., the Sino-Mexican DTT) does not contain the stipulations in Item 4.2.1 of Article 16.
   
10 listed Covered Tax Agreements do not contain the stipulations in Item 4.2.2 of Article 16.
   
1 listed Covered Tax Agreement (i.e., the Sino-Australian DTT) does not contain the stipulations in Item 4.3.1 of Article 16.
   
4 listed Covered Tax Agreements do not contain the stipulations in Item 4.3.2 of Article 16.
   
85 listed Covered Tax Agreements contain the stipulations in Item 2 of Article 17 - Corresponding Adjustments.

Meanwhile, China reserves the right to keep the following articles of the MLI, partially or entirely, from applying to the Covered Tax Agreements:

entire Article 3 - Transparent Entities
   
Item 1.1 of Article 9 – Capital Gains from Alienation of Shares or Interests of Entities Deriving their Value Principally from Immovable Property
   
entire Article 10 – Anti-abuse Rule for Permanent Establishments Situated in Third Jurisdictions
   
entire Article 12 – Artificial Avoidance of Permanent Establishment Status through Commissionnaire Arrangements and Similar Strategies
   
entire Article 13 – Artificial Avoidance of Permanent Establishment Status through the Specific Activity Exemptions
   
entire Article 14 – Splitting-up of Contracts
   
entire Article 15 – Definition of a Person Closely Related to an Enterprise, but the reservation only restricted to the Covered Tax Agreements to which the reservations provided in Item 4 of Article 12, Item 6.1 or 6.3 of Article 13 and Item 3.1 of Article 14 apply
   
the first sentence of Item 1 of Article 16 – Mutual Agreement Procedure, by proposing alternative methods for improving dispute resolution in order to achieve the minimum standard under the OECD / G20 BEPS Package
   

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

For further information, please contact:

       
Gilbert Shen
Counsel
Head of Tax Practice Area Group
CMS, China

T
+86 21 6289 6363

E
gilbert.shen@cmslegal.cn
Sherry Huang
Junior Tax Consultant
CMS, China


T +86 21 6289 6363

E sherry.huang@cmslegal.cn
       

 


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

CMS, China
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