Some contents of the Measures:

Definition:

1. Determination of Parties in Restructuring Business: Parties of debt restructure refer to debtor and creditor; parties of stock acquisition refer to acquirer, assigner and target company; parties of assets acquisition refer to assigner and acquirer; parties of merger refer to merger company, merged company and shareholders of the both; parties of enterprise split refer to split company, companies after split and shareholders of the both.

1. Substantive Operating Assets, refer to assets used in production and business activities which are directly related to business incomes; including all sorts of business assets, business information and technique owned by the company, receivables derived from business activities and d investment assets.

1. Determination of Restructuring Date: Debt restructure date shall be the day when debt restructuring contract or agreement comes into force; restructure date of stock acquisition date shall be the day when transfer agreement has come into force and formality of equity alteration is completed; restructure date of assets acquisition shall be the day when transfer agreement has come into force and assets are actually took over; restructure date of enterprise merger shall be the day when merger company acquires ownership of merged companies’ assets and completes alteration of I&C registration; restructuring date of enterprise split shall be the day when companies after split acquire ownership of split company’s assets and complete alteration of I&C registration.

Common Tax Treatment Management of Enterprise Restructuring  

1. For legal person who transforms into sole individual proprietorship enterprise, partnership enterprise or other unincorporated organization, or who transfers its registration place outside China (including Hong Kong, Macau and Taiwan), it should conduct liquidation according to Notice of the Ministry of Finance and SAT on Issues of Enterprise Income Tax Treatment on Enterprise Liquidation Business, Caishui No. 60 (2009). For other restructuring business complied with common tax treatment ( e.g. stock acquisition, assets acquisition, etc), the company should prepare materials for examination from tax authority, which should include agreements of debt restructuring or stock/assets acquisition, and legitimate proof of stock/assets’ proper value.

1. For enterprise merger or split, if merger parties or split enterprises are concerned with enjoying transitional tax preferential policies before expiration on whole enterprise ( all production and operation incomes) in Article 57 of EIT Law, only about remnant preferences shall Article 9 of the Notice be applied; unexpired tax preferences of nullified merged or split enterprises can not be succeeded by succession enterprises; newly established enterprises from merger and split should not succeed or renew above preferences. For enterprises of merger or split parties which are concerned with succession of enjoying tax preferences on enterprise income derived from production and operation, which are stipulated in tax preference provisions of EIT Law or in transitional preferential policies, Article 89 of the Enforcing Regulations shall be applied.

Special Tax Treatment of Enterprise Restructuring

1. For enterprises met requirements of the Notice, If they choose special tax treatment, should conduct recordation according to Article 11 of the Notice; If parties of enterprise restructuring need confirmation of tax authority, could choose to file application to tax authority by the leading party, and the authority shall submit to provincial tax authority level by level to get confirmation.

Article 22, 23, 24, 25 and 27 of the Measures provide materials need to be prepared specific to special restructuring as debt restructuring, stock acquisition, assets acquisition, merger and split. Materials need to be prepared include (but not limited to) statement of reasonable business purpose, approval documents of authorized department of the government, relevant materials about book value and taxation base, and materials proving that the restructuring meets requirements of special tax treatment (e.g. maintain original substantive business activity of the assets in 12 months, commitment of main original shareholders on not transferring obtained stocks).  

1. For enterprise enjoying transitional tax preferential policies on whole enterprise ( i.e. all production and operation incomes), if nature of the enterprise after merge or split and requirements of tax preferences have not changed, enterprise after merge or split can continue to enjoy tax preferences of enterprises before merger or split in remnant period. 

If remnant tax preference periods of the enterprises before merger are inconsistent, annual amount of taxable incomes of enterprise after merger should be similarly divided according to ratio of enterprise assets before merger in total enterprise assets after merger on merger date, and then calculated following separate remnant preferences. For enterprises before merger or split which are concerned with succession of enjoying tax preferences on enterprise income derived from production and operation, which are stipulated in tax preference provisions of Tax Law or in transitional preferential policies, Article 89 of the Enforcing Regulations shall be applied.

1. For special restructuring, the Notice also demand business and interests continuity of transaction parties in 12 months from restructuring (e.g. do not change original substantive business activities in continuous 12 months after merger). And the Measures clarified that above period refers to continuous 12 months calculated from above restructure date.

According to Article 10 of the Notice, for restructuring business concerned with gradual transaction in continuous 12 months, and lasting to the next year, if the parties estimate that the entire business can satisfy requirements of special tax treatment, and reach agreement of choosing special treatment, special tax treatment can be applied after first-step transaction. After examination of relevant materials, tax authority can temporarily approve the special tax treatment if requirements are satisfied. Relevant materials must be prepared according to the Notice for confirmation of special tax treatment after next-step transaction of 2nd year.

For above gradual transaction lasting to the next year, if the parties can not estimate whether the entire transaction will satisfy requirements of special treatment, common tax treatment shall be applied. After whole transaction is completed in the next tax year, if special tax treatment should be applied, annual enterprise income tax return of the 1^st year can be adjusted, and concerned over-paid taxes shall be refunded or credited in the 2^nd tax year.

Tax Management of Interstate Restructuring

1. For restructuring stipulated in Article 7 of the Notice, if comply with provisions of special tax treatment, implementation shall follow relevant contents of Chapter 3.

1. For restructuring stipulated in subparagraph 1, 2, Article 7 of the Notice, if comply with special tax treatment, preparation of materials shall follow requirements of Notice of SAT on Printing and Distributing Interim Measures for Administration of Source-based Withholding of Enterprise Income Tax on Non-resident Enterprises and ·Notice of SAT on Strengthening Administration of Enterprise Income Tax on Non-resident Enterprises’ Equity Transfer Income.

On July 6, 2010, the managing partner of Hwuason law firm, Liu Tianyong together with Hwuason lawyers delegation arrived in Vienna, Austria, and visited the headquarters of the Austrian tax firm LBG. At the meeting, numerous hot discussions on tax practice issues of both counties were set forth.

LBG is the leading local tax consulting and auditing firm with some 400 employees working in 30 offices all over Austria. Different from some international tax firms which concentrate on audit, LBG focuses on tax consulting for Small and Medium Sized Enterprises. However, LBG realized the new opportunities in tax business with the trend of international development and EU enlargement as well.

The firm pointed out that although the tax systems in Austria and Germany might appear similar at the first sight, there are significant differences when it comes to the details. In comparison to Austrian Lawyers with the background in civil and public law Austrian tax consultants and chartered public accountants are highly skilled and specialized in tax law. This is why 99% of tax business in Austria is managed by tax consultants and not by tax lawyers as in some other European countries.

With EU integration and economic globalization, tax-related business and tax consulting will play an increasingly important role. The successful experience of the exchange visits is also worthy of learning and referencing for local law firms in China.

On July 6, 2010, the managing partner of Hwuason law firm, Liu Tianyong together with a Hwuason lawyers delegation arrived in Austria, and visited the famous local tax firm LeitnerLeitner. At the meeting, numerous hot discussions on tax practice issues of both countries were set forth.

LeitnerLeitner is one of the leading tax consulting and auditing companies in the CEE/SEE countries.

We learned that tax lawyers in Austria are highly valued and experienced both, in business and law matters.

Although Austrian business entities still focus on the European market, more and more Austrian entrepreneurs are taking the chance of going Far East, especially to China. Tax-related business and tax lawyers will play an increasingly important role and, thus, strong partnerships between both continents will be needed herefor. The successful experience of the exchange visits is worthy of learning and referencing for local law firms in China.

On July 5, 2010, the managing partner of Hwuason law firm, Liu Tianyong together with Hwuason lawyers delegation visited De Brauw Blackstone Westbroek N.V.

During the visit, all senior tax partners of the law firms participated in the communication sessions. Both law firms own high-quality staffs in tax departments and attach great importance to the tax related business. Facing the new tax issues and the challenges to innovation, they adjust business strategies continually to be more professional.

Furthermore, they expressed great interest in developing business in and outside China and to pursue objectives that are of mutual interest to both firms.

On July 3, 2010, the managing partner of Hwuason law firm, Liu Tianyong together with Hwuason lawyer’s delegation visited TAXPERIENCE. Two founding partners attended the communication conference. All participants discussed deeply about their experience, tax developments and the new challenges ahead in the tax field.

TAXPERIENCE is a renowned institution that is engaged in all sorts of tax-related advisory and business services. Its widespread business scope, specialization in tailor made and to-the-point tax consultancy, expertise knowledge on a variety of in- and outbound investment vehicles and R&D operations have made its good reputation all over Europe.

It is believed that through this exchange visit, the two parties will improve their understanding to each other, enhance the mutual study and communications, and promote the friendship as well.

On July 2, 2010, the managing partner of Hwuason law firm, Liu Tianyong together with Hwuason’s lawyers delegation visited GGSM law firm in France. The chief partner and three senior counsels attended the meeting. Two parties exchanged their professional opinions during the meeting.

At the conference, the GGSM law firm expressed its keen interest in Chinese tax laws and Hwuason Law Firm. Centering on newly issued Circulars, the two parties discussed hotspots on tax administration concerning foreign investment in China. Meanwhile, the GGSM law firm showed its interest to strengthen the ties with Hwuason for further communication and cooperation.

GGSM is a comprehensive law firm with all kinds of tax business; the tax department takes an important role in its development. Its new focus on domestic and internal tax law reveals the ambition in becoming a diversified and specialized law firm. Under this circumstance, this visit has not only enhanced the mutual understanding and trust, but provided each other a better foundation for further development.

The Administrative measures for enterprise income tax on enterprise reorganization details the regulations of the Notice of the Ministry of Finance and the State Administration of Taxation on several issues concerning the enterprise income tax treatment on enterprise reorganization, and is the major basis to administrate the enterprise income tax on enterprise reorganization, therefore, enterprises should pay high attention to it. Hwuason will make a follow-up detailed analysis on the measure, assist enterprises with better understanding the measure and solve the tax-related issues faced by enterprise during reorganization.

From macroscopical on look, tax authorities should explain what kind of sampling method they adopted; in whole sampled enterprises the respective percentage of those enterprises whose related party transactions amount regard to purchase/sale exceeding CNY 200,000,000 and other related party transactions amount over CNY 40,000,000; the respective percentage of enterprises in tracing managing period, with thin capital, with cost sharing agreement, and bearing loss with limited functions and risks. Besides, tax authorities should gather statistics on the enterprises’ various approaches to prepare contemporaneous documentation, mainly inspecting whether they relied on the aid of intermediary organ and which organs were entrusted. In particular, tax authorities should clarify the percentage on preparing contemporaneous documentation of Big Four, domestic firms, foreign firms and enterprises themselves respectively.

From micro-perspectives, according to five detailed requirements on contemporaneous documentation preparing in the special tax adjustment implementation regulation, tax authorities should evaluate the first four aspects from three ranks, in particularly as detailed description, incomplete information and no data; For the fifth aspect, the selection and using of transfer pricing methods, should be gathered statistics from the percentage of five frequently-used transfer pricing methods.

In concrete practice, tax authorities should evaluate the sampled enterprises’ contemporaneous documentation preparing situations from the four levels, including good, ordinary, poor and very poor. They also compile statistics in different ways on preparing contemporaneous documentation for enterprises in each level. Combined with certain analysis in macro-on look part, tax authorities can assess the quality of tax services by intermediary organs, as so to provide guidance for those enterprises who are intent to trust an intermediary organs when prepare contemporaneous documentation.

 To national tax bureaus and local tax bureaus in each province, autonomous region, municipality directly under the central government, municipality separately list on the state plan:

 Serving the purpose of implementing the new Enterprise Income Tax Law and its enforcement regulations, enhancing the supervision on contemporaneous documentation, knowing the compliance situation and relative problems in enterprises’ preparing contemporaneous documentation, State Administration of Taxation decides to make a random inspection on contemporaneous documentation preparing nationwide. The following is the explicit detailed requirements:

Firstly, tax authorities in provinces organize the random inspection on contemporaneous documentation under their administration area, which should cover two tax year of 2008 and 2009.Each competent tax departments should according to enterprises’ related-parting reporting data, calculated the enterprises list which ought to prepare contemporaneous documentation in the province annually, strictly follow statistical sampling method to select samples(the quantity of selecting samples for each year should not be lower than 5% in the whole),and organize to inspect the situation of sample enterprises’ contemporaneous documentation. The department of big enterprises taxation managing in State Administration of Taxation will separately arrange the contemporaneous documentation inspection for those enterprises directly contacted with State Administration Taxation.

Second, each tax authority should fill in contemporaneous documentation preparing situation table annually on the basis of inspection. (See annex one), make an analysis report after aggregation. The aforesaid analysis report shall be reported to the State Administration of Taxation (International Taxation Department) through FTP before October 31 2010.

Annex:

1. ____ (year) contemporaneous documentation preparing situation table

2. ____ (year) sample report on situation analysis for contemporaneous documentation preparing situation.

Administrative Measures on Non-residents Enjoying Treatments under Tax treaties (Trail) (hear after refers to as the Measures) has been published and put into effect since Notice of SAT on distributing Administrative Measures on Non-residents Enjoying Treatments under Tax treaties (Trail), Guoshuifa No.124 (2009). Now supplementary implementing measures are noticed as follows:

1. State tax bureaus and local tax bureaus in Article 6 of the Measures include all tax authorities stated in Article 14 of Tax Collection and Management Law of People’s Republic of China.
2. Tax Identity Certificates which should be provided by Taxpayers according to Subparagraph 3, Paragraph 1 of Article 9 or Subparagraph 2, Paragraph 1 of Article 12, include Tax Identity Certificates documented by authorities of the other side of Tax treaties in following forms:

a) Relevant contents filled in Blank 13, Appendix 1 or Blank 25, Appendix 2 under Guoshuifa No.124 (2009).      

b) Special certificates documented independently.

III.    Non-residents could be exempted of submitting materials which have already been submitted, only for materials submitted to the same tax authority. Non-residents who should propose for approval application and recordation report to different authorities should submit relevant materials respectively.

1. When recording enjoyment of Agreement treatments before tax obligation declaration, according to Article 11 of the Measures, Blank 20 of “ Earning Amount or Taxable Income Amount” and Blank 21 of “Exemption and Reduction amount” of Recordation Report Form of Non-resident Enjoying Tax treaty Treatments shall be filled according to arrangements of the contract or estimated number; when declaring the recorded tax obligations by law, taxpayers or withholding agents should then fill Implementing Status Report of Non-resident Enjoying Tax treaty Treatments (see Appendix 3), to report the implementing status of recorded non residents’ Tax treaty enjoyments.
2. Withholding incomes requiring recordation in Article 13, which refer to contents of Article 11, do not include incomes requiring approval according to Article 7 of the Measures, to which the withholding at source applies in conformity to laws and regulations within China.

When implementing Tax treaties treatments which need to be recorded, withholding agents should complete recordation process under Article 13 of the Measures no matter taxpayers have already submit relevant materials or not. If taxpayers refuse to provide relevant materials, withholding agents should not implement the Tax treaty treatments.

1. “Working time limit referred to in Article 16 of the Measures” mentioned in Paragraph 2, Article 17 refers that prescribed by Subparagraph 1, Paragraph 1 of Article 16, that is, tax authorities in charge of reported cases under Article 17 should make their decision in 20 working days and inform approval authority directly / rank by rank, or complete the re-report process.
2. Article 2 of Notice of SAT on Interpreting and Implementing Provisions of Arrangements for Avoidance of Double Taxation between Inland and HK SAR, Guoshuihan No.381 (1998), and Paragraph 3, Article 3 of Notice of SAT on Interpreting and Implementing Provisions of Arrangements for Avoidance of Double Taxation and prevention of fiscal evasion between Inland and HK SAR, Guoshuihan No.403 (2007), are rules based on Agreements of tax arrangements which formed by negotiation between SAT and Tax Bureau of HK SAR. According to Article 44 of the Measures, when conflict occurs, these 2 provisions should be complied.
3. Concerned Income Types and their Codes in filling instruction of Appendix 1, 2 and 5 of Guoshuifa No.124 (2009) should be changed into: Business Profits-7, Dividends-10, Interests-11, Royalties-12, Property Incomes-13, Remuneration for Independent Service-14, Remuneration for Dependent Service-15, Incomes of Artists or Sportsmen-17, Retirement Allowance-18, Education or Training Fees paid to Students-20, Other Incomes-21. See modified Forms in Appendix 1, 2 and 3.
4. “Seal or signature of tax authority or its delegator” in Blank 26, Appendix 2 of Guoshuifa No.124. (2009) should be changed into “Seal or signature of acceptance tax authority or its delegator”. “Acceptance tax authority” refers to the tax authority who receives approval applications of non-residents or who has the right to approve.
5. “The recent one year” in Blank 15-21, Appendix 3 of Guoshuifa No.124, (2009) refers to the year before the applicant gains his incomes.
6. Report Form for Approval and Implementing Results of Non-residents Enjoying Tax treaty Treatments of Appendix 5, and Summary Form for Non-residents Enjoying Tax treaty Treatments (by Country) of Appendix 6 in Guoshuifa No.124 (2009) shall be replaced by Report Form for Implementing Results of Non-residents Enjoying Tax treaty Treatments of Appendix 3, and Summary Form for Implementing results of Non-residents Enjoying Tax treaty Treatments of Appendix 4 in this Notice.
7. All report forms under the Measures should be in duplicate, one retained by the applicant and the other for the tax authority.
8. Local authorities shall conduct annual summary of implementing results of Tax treaties, fill the summary forms and submit to SAT before end of next March.