• Service: Tax, Corporate Tax
  • Type: Regulatory update
  • Date: 5/08/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Paul Abela

Paul Abela
Partner, Tax

+61 2 9455 9576

Treaty protections that go bump in the night 

by Paul Abela, Corporate Tax Specialist
Globalisation and tax competition has led to many nations limiting (if not eliminating) source country tax on the (passive) investments of non-residents.

A common exception however applies to 'land rich' investments, which is often preserved by that jurisdiction’s network of double tax agreements (DTA).


Many foreign investors (including Australian fund managers) have gained Qualified Foreign Institutional Investor (QFII) status in China. QFII status allows a foreign investor to trade renminbi denominated 'A' shares on China’s mainland exchanges.


While a number of China’s DTAs seek to make a land rich v non-land rich distinction (e.g. Hong Kong and Mauritius DTAs), a number of others do not (e.g. Australia and Canada DTAs).


Recently, the State Administration of Taxation (SAT) issued Circular 59 to help foreign investors make that distinction. The impact of Circular 59 on QFIIs has largely escaped attention. Broadly, a 'land rich' Chinese company will have (directly and indirectly) more than 50 percent of the value of its gross assets in Chinese immovable property. Circular 59 goes on to state that this calculation is based on the fair market value of that immovable property.


Broadly, Chinese Generally Accepted Accounting Principles (GAAP) is based on historical cost principles. Unlike Australian tax laws, the magnitude of the non-resident’s interest is not relevant under Chinese tax laws. As most shareholdings held by QFIIs would be less than 5 percent, it is highly unlikely that they would be in a position to perform any such a land rich calculation.


So some QFIIs might find it difficult (if not impossible) to prove their entitlement to that DTA exemption.


Share this

Share this


Our Tax team assists with corporate tax, transfer pricing, indirect tax, global mobility, R&D incentives, superannuation and more.

Corporate Tax

At KPMG we combine an in-depth knowledge of corporate taxation issues with our understanding of how tax fits into the broader picture.