China State Administration of Taxation notification on strengthening corporate income tax management on non-resident enterprises equity transfer income No.698 (2009)

The State Administration of Taxation issued the notification on strengthening corporate income tax management on non-resident enterprises equity transfer income on December 10, 2009.
Core Contents:

• The non-resident enterprise shall declare and pay corporate income tax with the relevant tax administration authority where the Chinese resident enterprise registered at within 7 days after the agreed share transfer date.

  
  

• Specify the tax methods and basis of non-resident enterprises equity transfer.

  
  

• If a non-resident enterprise transfers the equity in a Chinese resident enterprise to a related party and the transfer price is not in line with the arms length principle for the purpose of reducing taxable income, the relevant tax authority holds the right to make adjustment according to general practice.

  
  

• If a foreign investor (actual controlling party) transfers the equity in a Chinese resident enterprise equity indirectly via arrangements such as through the misuse of the corporate form without a reasonable business purpose to avoid corporate income tax liability, the relevant tax authority holds the right to ignore the existence of the offshore holding company used for the tax arrangement.

  
  

The notce came into force on January 1, 2008.

Full text of Notice of the State Administration of Taxation on Strengthening the Management of Enterprise Income Tax Collection of Proceeds from Equity Transfers by Non-resident Enterprises