China Tax/Business News Flash

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Mar 2015, Issue 12

New challenges to the tax valuation for the offshore indirect transfer

On 6 February 2015, the State Administration of Taxation (SAT) issued Public Notice [2015] No. 7 (Public Notice 7) regarding Corporate Income Tax (CIT) treatment on indirect transfer of Taxable Properties in China by non-tax resident enterprises (Non-TRE). Among the seven general criteria and four unfavourable conditions to assess the ‘reasonable commercial purpose’ under Public Notice 7, two of the factors relates to whether the main target of the transaction is the Taxable Properties in China based on the relevant asset values.

Obviously, a proper asset valuation method would be important to assess the value of relevant assets in the course of assessing ‘reasonable commercial purpose’. We believe that in the implementation of Public Notice 7, tax authorities may further clarify relevant requirements in relation to the asset valuation and valuation report. In this News Flash, we highlight the valuation issues worth noting in Public Notice 7, including the discussion on various asset values, the concern on the selection of valuation standards and key valuation elements, the value allocation among multiple assets, etc. We also recommend foreign investors should study the changes of the new policy and assess the impact on the preparation and use of asset valuation report.

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