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
国务院办公厅关于实施《中华人民共和国电力法》有关问题的通知
国务院办公厅
国务院办公厅关于实施《中华人民共和国电力法》有关问题的通知
1996年4月2日，国务院办公厅
各省、自治区、直辖市人民政府，国务院各部委、各直属机构：
《中华人民共和国电力法》（以下简称《电力法》）于1995年12月28日由全国人大常委会通过，自1996年4月1日起施行。为了保障《电力法》的顺利施行，经国务院领导同志同意，现将有关问题通知如下：
《电力法》第六条规定：“国务院电力管理部门负责全国电力事业的监督管理”；“县级以上地方人民政府经济综合主管部门是本行政区域内的电力管理部门，负责电力事业的监督管理。”这一规定体现了我国电力工业管理体制改革的要求。但是，按目前电力工业管理体制，电力工业部和现有的地方各级电力管理机构仍承担着电力事业的监督管理职责。为了保障电力建设、生产、供应的正常进行，保障《电力法》的贯彻实施，在现行电力工业管理体制改革前，仍由电力工业部和现有的地方各级电力管理机构履行《电力法》规定的电力管理部门的职责；在现行电力工业管理体制改革后，由县级以上地方人民政府指定的经济综合部门履行电力管理部门的职责。