China Tax Newsletter
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Emilio Wang Management, Guangzhou - Guangzhou Tianhe District
Joey Zhou Partner, Tax Advisory Services - Beijing
Final OECD Transfer Pricing Guidelines on Financial Transactions (Part I: Intra-Group Loans)
The Organization for Economic Co-operation and Development (OECD) has released in February 2020 the final Transfer Pricing Guidance on Financial Transactions (“Guidance”). The Guidance provides an insight on the arm’s length treatment of various financial transactions among related parties. The Guidance has been published as a follow up guidance in relation to Base Erosion and Profit Shifting (“BEPS”) Action 4 and Actions 8-10. Sections A-E of the Guidance will be added as a new Chapter X of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (“OECD TPG”), whereas the guidance on the determination of risk-free and risk-adjusted rates of return ( Section F) will be included in Chapter I of the OECD TPG. This is the first time that multinational enterprise (MNE) groups are provided with guidelines on how to structure and price intra-group financial transactions.
Chinese Human Resources and Social Security Regulations
Chinese government have issued various regulations in regard of Human resources(HR) and Social security(SC) to support enterprises in difficult period. We’d like to share with you the latest announcement which may benefit your company. Kindly note these are latest notices announced, it may be revised or cancelled by the government in such situation.
OECD Secretariat Analysis of Tax Treaties and the Impact of the COVID-19 Crisis
April 2020 - TRANSFER PRICING IN THE WAKE OF COVID-19 AND THE RECENT CHINA-US TRADE DISPUTE
Multinational enterprises (MNEs) which source their products manufactured in China or sell to the China market will be adversely affected by the coronavirus disease 2019 (COVID-19) and the recent China-US Trade Dispute during 2019. In addition to a declining global economy because of the above un-fortunate factors, these MNEs will face disruptions to their supply chains and challenges of moving personnel cross borders, which will likely lead to an erosion of profit margins.
Both the China and the Hong Kong governments have announced emergency measures to help the businesses in the two regions. Nevertheless, while the governments will provide stimulus to help the economy, they would need to boost tax revenues to finance these measures, not necessarily by increasing the tax rate, but by looking at the MNEs to raise tax revenues. MNEs, which may generally be perceived by the governments and the broader population as not paying their fair share of taxes, will likely be in the crosshairs of the tax authorities, including the China and the Hong Kong tax authorities, as an appealing revenue source to cover some of the recovery package costs.
Both the China and the Hong Kong governments have announced emergency measures to help the businesses in the two regions. Nevertheless, while the governments will provide stimulus to help the economy, they would need to boost tax revenues to finance these measures, not necessarily by increasing the tax rate, but by looking at the MNEs to raise tax revenues. MNEs, which may generally be perceived by the governments and the broader population as not paying their fair share of taxes, will likely be in the crosshairs of the tax authorities, including the China and the Hong Kong tax authorities, as an appealing revenue source to cover some of the recovery package costs.
Key preferential policies released recently in supporting epidemic prevention and control of Covid-19
New Measures For Claiming Treaty Benefits
The State Administration of Taxation (the “SAT”) has loosened up its requirements for non- residents of China in claiming the applicable tax treaty benefits, effective 1 January, 2020. The new measures were issued under SAT Public Notice (2019) No. 35 (the” PN 35”) in October 2019. Previously, under the SAT Public Notice (2015) No. 60 (the “PN 60”), pre-approval by the China tax authority in claiming tax treaty benefits was not required, but taxpayers were still required to fulfil the record-filing procedure. The PN 35 goes even further by allowing non - resident taxpayers to determine whether it is eligible for the relevant tax treaty benefits, i.e., a self-assessment of eligibility, and claim such tax treaty benefit as long as the relevant supporting documents are retained for inspection by the tax authority.
This new measure is one of the measures to optimize the taxation business environment and to “streamline administration, delegate powers and improve regulation and services”.
This new measure is one of the measures to optimize the taxation business environment and to “streamline administration, delegate powers and improve regulation and services”.
CHINA’S NEW FOREIGN INVESTMENT LAW AND ITS IMPACT ON FOREIGN INVESTMENT ENTERPRISES
On 15 March, 2019, the National People’s Congress has passed the new Foreign Investment Law of PRC (the “Foreign Investment Law” or the “New Law”), which has come into force on 1 January, 2020. The new law marks the next level of Chinese government’s opening-up policy to enhance a more transparent business environment and to ensure that domestic and foreign enterprises compete on a level playing field, with equal treatment under the unified legislative rules and processes. It is also an attempt by the Chinese government to respond to international criticism from the US in light of the still on- going US-China Trade Negotiation. In particular, the Foreign Investment Law seeks to address common complaints from foreign businesses and governments, such as by explicitly banning forced technology transfers.
Supportive policies in the epidemic prevention and control period
At the beginning of 2020, a sudden epidemic swept across China seriously attacking the process of economic development. All kinds of small and medium-sized enterprises are encountering the challenge of survival. In order to prevent the adverse impact of epidemic expanding on economy, the central and local governments have introduced supportive policies in response to the epidemic, to alleviate the operating difficulties of the affected sectors, and to help enterprises tide over the difficulties.
July 2019 – Mauritius: An Investment Gateway to Africa for Chinese Companies
Introduction
With its strategic geographic location between China and Africa and its stable regulatory environment, Mauritius looks set to strengthen its position as an investment gateway to Africa under China’s “Belt and Road” initiative.
This article discusses the tax factors that contribute to the success of Mauritius as a preferred investment jurisdiction and highlights some of the structuring possibilities available to Chinese entities looking to invest in Africa. These tax factors include a simple tax system, fast expanding double taxation tax agreements (“DTAs”), and being white-listed by the Organisation for Economic Cooperation and Development (“OECD”).
With its strategic geographic location between China and Africa and its stable regulatory environment, Mauritius looks set to strengthen its position as an investment gateway to Africa under China’s “Belt and Road” initiative.
This article discusses the tax factors that contribute to the success of Mauritius as a preferred investment jurisdiction and highlights some of the structuring possibilities available to Chinese entities looking to invest in Africa. These tax factors include a simple tax system, fast expanding double taxation tax agreements (“DTAs”), and being white-listed by the Organisation for Economic Cooperation and Development (“OECD”).
July 2019 - Economic Substance in Bermuda, the Cayman Islands and the BVI – Understanding the Requirements
In December 2018, Bermuda, Cayman Islands and the BVI, along with many other jurisdictions with low or zero rate of corporate income tax, passed legislations that introduced increased economic substance requirements for certain entities.
The legislations are designed to meet the requirements outlined by the European Union’s (“EU’s”) intergovernmental Code of Conduct Group (“CoCG”) on Business Taxation, which are aimed at jurisdictions with low or zero rate of corporate income tax.