China Tax/Business News Flash

Feb 2018, Issue 7

China updates its interpretation of a few tax treaty articles

China’s current interpretation regarding the implementation of double taxation agreements (DTA) are mainly reflected in the "Notice Issued by the State Administration of Taxation (SAT) Releasing the <Interpretation of the Articles in the DTA between China and Singapore and the Relevant Protocols>" (Guoshuifa [2010] No. 75 or Circular 75). The interpretation in Circular 75 is also applicable to other DTAs concluded by China if the provisions of the relevant articles in those DTAs are the same as those in the China-Singapore DTA.

The SAT issued SAT Public Notice [2018] No.11 (Public Notice 11) on 9 February 2018 to update its interpretation of a few articles under DTAs concluded by China and clarify the DTA treatment of partnerships for the first time. Public Notice 11 will take effect from 1 April 2018. The major updates are as follows:

  • Permanent establishment (PE) article: Clarifying that Sino-foreign cooperative education institutions/programs would constitute a PE in China; and the "6 months period” threshold for a service PE is interpreted as "183 days";
  • Shipping and air transport article: Amending the scope of international transportation income;
  • Artists and sportsmen article: More comprehensive interpretation of the article;
  • New interpretation for DTA treatment of partnerships and partners.

Public Notice 11 may have impact on non-residents who are engaged in Sino-foreign cooperative education institutions/programs in China or provide services in China, international transportation companies, non-resident artists/sportsmen who carry out relevant activities in China and domestic/foreign partnerships and their partners who derive income from China. They are suggested to review their cross-border business models and evaluate the potential tax implications. It is also important for them to pay attention to the interpretation in Public Notice 11 that deviates from international practice as well as the unclear issues.  Where necessary, they may need to come up with solutions to mitigate the potential negative impacts.

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Peter Ng
China Mainland and Hong Kong Tax Leader, PwC China
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Spencer Chong
Partner, PwC China
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Edwin Wong
Lead Partner, China Outbound Investment Service; China North Tax Leader, PwC China
Tel: +[86] (10) 6533 2100
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Alan Yam
China Central Tax Leader, PwC China
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Charles Lee
China South and Hong Kong Tax Leader, PwC China
Tel: +[86] (755) 8261 8899
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Jeremy Ngai
China South Tax Leader, PwC China
Tel: +[852] 2289 5616
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