China Tax/Business News Flash

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Dec 2013, Issue 32

Enjoying tax deferral treatment for intra-group restructuring - easier or more difficult?

Non-Chinese tax resident enterprises (Non-TREs) are generally subject to China Corporate Income Tax (CIT) on the gain derived from the transfer of equity interest (shares) in Chinese TREs, i.e. the General Tax Treatment (GTT). If the transfer can satisfy the specific criteria under the relevant tax regulations, the gain may be eligible for Special Tax Treatment (STT), pending the approval of their in-charge tax bureaus. However, STT, in particular for cross-border intra-group equity transaction for foreign invested groups, has rarely been approved by the Chinese tax authorities due to the lack of detailed guidance on how to assess whether a transaction satisfies the STT criteria.

The State Administration of Taxation (SAT) newly released a tax circular, entitled SAT Public Notice [2013] No.72 (Public Notice 72) which sets out new technical and procedural guidance for Non-TREs to apply for STT for the transfer of Chinese TREs. Foreign invested groups may now have a higher chance to secure STT for their inter-group equity transfer transactions. They are encouraged to analyse the impact of Public Notice 72 on their restructuring plans and assess the opportunities and challenges in light of the new guidance.

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