Interpretation of Circular No.698

Jian Sun


Background

　In accordance with provisions of the new Law of Enterprise Income Tax (2008) and Implementing Regulations (2008), whether the income from equity investment asset transfer is derived from PRC shall be classified by the domicile of the invested enterprise, so as to decide whether should pay the income tax in PRC jurisdiction. Whereas, the State Administration of Taxation of PRC (SAT) has not clearly addressed the condition that whether the income from foreign enterprises’ transfer of Chinese domestic enterprises shares they indirectly held by the transfer of offshore holding companies falls into Chinese jurisdiction or should pay income tax in PRC.

The promulgation of Circular No.698 Guoshuihan 2009

　On December 10, 2009, the State Administration of Taxation (SAT) promulgated the Circular on Regarding Strengthening the Administration of Income Tax of Sale of Shares by Non-Resident Enterprises, (Guoshuihan [2009] 698) .

　Provisions in Circular No.698 clearly addresses that prevent the foreign enterprises from evading income tax obligation by indirect transfer of shares of Chinese resident enterprises through arrangements like abusing the corporate governance.

　In accordance with the provisions in Circular No.698, foreign investor whose indirect transfer of Chinese residence enterprises falling into the following two catalogues:

(1) The real tax burden rate of the jurisdiction where the offshore holding company transferred is incorporated is less than 12.5%; or

(2) The jurisdiction where the offshore holding company transferred is incorporated does not acquire income tax from foreign-sourced income.

　shall submit the relevant documents as below to the local taxation bureau where the Chinese domestic enterprises being transferred located within 30 days after the execution of Share Transfer Agreement to prove the aforesaid indirect share transfer is for reasonable commercial purpose.

(1) Share Transfer Contract or Agreement.

(2) The relationship between Foreign Investors and Offshore Holding Companies transferred by Foreign Investors regarding finance, operation, purchase and sale, etc;

(3) The situation of the operation, personnel, finance, property of the offshore holding companies transferred by foreign investors;

(4) The relationship of the offshore holding companies transferred by foreign investors and Chinese domestic enterprises regarding finance, operation, purchase and sale, etc.

(5) The Explanations of reasonable commercial objectives of establishment of offshore holding companies by foreign investors.

(6)Other relevant documents required by Taxation Authorities.

　Where administrating tax authorities, upon review and examination of the documents submitted by foreign investors, deem such offshore holding company to be a vehicle incorporated for the purpose of tax evasion, it has the power to re-classify the share transfer transaction in according to the nature of economies, deny the existence of offshore holding company and impose 10% income tax to the transfer of shares after the examination by the State Administration of Taxation.

　In the second place, when non-resident enterprises transfer Chinese resident enterprises to affiliated parties in the unfair price compared to the fair and independent transaction to reduce the taxable income, tax authorities have the power to adjust the income by proper methods.

　In the third place, provisions contained in Circular 698, share transfer income refers to difference between share transfer price and share cost. Share transfer price includes all sum received by share transfer assignors. In the event of invested enterprises have non-allocated profit or various funds after tax profit drawing, the invested enterprises shall not deduct aforesaid income sum from share transfer price. Cost of shares refers to real contribution sum paid by share transfer assignor to Chinese domestic company, or transfer sum paid to original assignors in the time when assignors purchased these shares.

Influence to the Oversea IPO’s and M&A

　As the Circular 698 enforced from January 1, 2008, non-resident enterprises shall review the transfer situation of Chinese domestic enterprises to decide the next step whether to calculate and submit the Enterprise Income Tax (direct transfer) or to submit the relevant document to Local Tax Authorities in the place where Chinese domestic enterprises located (indirect transfer).


国税函 2009（698）号解读
Interpretation of Circular No.698

发布背景
海南省高级人民法院 海南省人民检察院 海南省公安厅


海南省高级人民法院、海南省人民检察院、海南省公安厅关于盗窃罪数额认定标准问题的规定

(1998年4月14日)

全省各级人民法院、人民检察院、公安局（处）：
　　根据刑法第二百六十四条的规定和最高人民法院、最高人民检察院、公安部“关于盗窃罪数额认定标准的规定”，结合当前我省的经济发展水平和社会治安状况，现对我省各市、县关于盗窃数额认定标准规定如下，望遵照执行。
　　一、个人盗窃公私财物“数额较大”，海口市、三亚市、洋浦经济开发区、琼山市以一千元为起点；其他市、县以八百元为起点。
　　二、个人盗窃公私财物“数额巨大”，海口市、三亚市、洋浦经济开发区、琼山市以一万元为起点，其他市、县以八千元为起点。
　　三、个人盗窃公私财物“数额特区巨大”，海口市、三亚市、洋浦经济开发区、琼山市以六万元为起点；其他市、县以五万元为起点。
　　以上规定执行中有何问题，分别报告省高级人民法院、省人民检察院、省公安厅。