Column: PRC Technical Column(s)

Offshore special purpose vehicles (offshore SPVs) are commonly used by investors, including multinational corporations and investment funds, as intermediate holding companies for their cross-border investments for income tax, legal, operational, or other reasons. From an income tax perspective, an offshore SPV could enjoy applicable tax treaty benefits such as reduced withholding tax rates on dividends, interest, and royalty payments, or capital gains tax exemptions on the transfer of shares. Another reason for setting up an offshore SPV would be to facilitate a future exit strategy through a transfer of shares in the SPV without triggering any taxes in the country in which the investment is located. In most cases, the transfer of shares in the offshore SPV will not trigger any taxes in the offshore country....

Although many countries in the Asia Pacific region and Europe have yet to recover from the 2009 financial crisis, the Chinese economy continues to boom. With an average GDP growth of 9 per cent over the past 10 years and a continuous trade surplus, China has extremely healthy foreign currency reserves and has built up substantial purchasing power. The promulgation of the “Administrative Measures for Outbound Investment”, issued by the Ministry of Commerce with effect from 1 May 2009, reflects the Chinese Government’s understanding of the desire of PRC companies to invest abroad and the need to implement more measures to encourage and monitor such outbound investment. Under the “Going Out” policy, mainland investors have gained more opportunities and a wider range of options for accelerating their global expansion. Having said that, many aspects of the tax regime are also changing. This article focuses on how these changes affect Chinese companies investing overseas....

The leasing business model has long been a hot topic among academics, industry, and relevant government agencies. Moreover, specific seminars and lobby work have undertaken to push the development of leasing in China. As a rule, the business of leasing involves both operating leases and financial leases. This article focuses on cross-border leasing activities, which are becoming increasingly popular in international trade. The writer will share her understanding of the relevant regulations and summarise her observations and experiences in this area from the perspective of Customs, including customs liability, tax impact, customs, valuation, as well as rental remittance and foreign exchange requirements....

Value added tax (VAT) is the most important tax in China. Based on statistics for 2009, revenue from VAT, excluding the import VAT levied by Customs, accounted for RMB1,882 billion,1 approximately 30 per cent of the total tax revenue of the PRC. In 2008, export VAT refund and processing trade policy swung between tightening and relaxing. In addition, the financial crisis and economic recession starting in 2008 prompted the State Council to reform the VAT from a production to a consumption type, a change that became effective on 1 January 2009. This article gives an overview of the prevailing VAT regime and export VAT refund policies in China, as well as the export VAT refund in Special Customs Zones....

Since the implementation of the Unified Enterprise Income Tax Law (“New EIT Law”) on 1 January 2008, the taxation of non-resident corporations has received considerable attention both within and outside China. Many companies have experienced greater difficulties in repatriating funds out of China since early 2009. Breaking regulations, together with the increasing number of recently discovered tax audit cases, have served as a chilling reminder for multinational corporations (MNCs) with business or investments in China that they need to calculate the potential increase in operating costs within the country. In this article, we would like to highlight the latest developments in non-resident taxation and share our observations....

On 8 January 2009 the China State Administration of Taxation (SAT) issued the highly anticipated Implementation Regulations for Special Tax Adjustments (Trial) (STA Rules). The issuing of these regulations is considered a landmark in the history of China’s cost sharing rules, as they provide much needed administrative guidance on how cost sharing agreements (CSAs) will actually be determined, assessed, and implemented by China’s tax authorities. These rules have brought hope that CSAs will create a new wave of intellectual property (IP) innovation for Chinese enterprises and pave the way for China to attract more advanced IPs. This paper reviews the past and present of China’s cost sharing regulations by comparing them with those of the Organisation for Economic Cooperation and Development (OECD) and the US. It further analyses the opportunities that CSAs bring to taxpayers, as well as the challenges faced by both China’s tax authorities and the taxpayers....

On 30 April 2009, the Ministry of Finance and State Administration of Taxation jointly issued a notice regarding several questions about Corporate Income Tax Treatments for Corporate Restructuring (Caishui [2009] No. 59, hereinafter referred to as “circular no. 59”), which is the detailed implementation rule about corporate restructuring and the relevant tax treatments. There are three significant changes from the tax rules for corporate restructuring under the old income tax regulations for both Chinese domestic enterprises and foreign-invested enterprise....

To distinguish the round of tax reform starting in late 2003 until the present from the reform of 1994, we will refer to it as the “New Round of Tax Reform”. The proposal for this New Round of Tax Reform can be traced to the Third Plenary Session of the 16th Party Central Committee of the Communist Party of China held in October 2003. The 20th clause of the “Decision of the Central Committee of the Communist Party of China on Some Issues concerning the Improvement of the Socialist Market Economy” adopted in the session, which covers implementation of the reform of the taxation system in phases, summarised the major contents of the tax reform in nine items as follows: 1) the export tax refund system will be reformed; 2) taxation of various kinds of enterprises will be unified; 3) the value-added tax will become consumption-oriented instead of productionoriented, and equipment investment will be brought into the range of the VAT...

The intensifying effect of the global economic downturn has forced tax authorities to take more aggressive action in protecting their tax revenues. During the G20 Summit held in London, the leaders called for international tax transparency and indicated that their countries would take action against non-cooperative countries. On 4 May 2009, US president Barack Obama released details of international tax proposals in his budget for fiscal year 2010. The proposals include a major revamping of US tax law on cross-border transactions and structures and also address perceived abuses involving the use of so-called “tax haven” countries. All these new developments have made managing the potential tax exposures for a global business more challenging than ever. In the industry of alternative investment, not only fund managers but also investors must face these challenges. This article discusses some common People’s Republic of China (PRC), Hong Kong, and US tax issues that an offshore fund investing in the PRC may encounter....

In November 2008, China’s State Council promulgated amended Provisional Regulations of the People’s Republic of China on both Value- Added Tax (VAT Regulations) and Business Tax (BT Regulations). To facilitate implementation of these changes, corresponding amendments needed to be made to the Detailed Implementation Rules (DIR) of the Regulations. In December 2008, the Ministry of Finance released the amended DIR to both the VAT Regulations and the BT Regulations to take effect from 1 January 2009. In addition, the authorities issued a number of circulars to clarify some of these amendments and address related issues arising from them....