• Service: Tax, China Tax Services, International Tax Services
  • Type: Publication series, Regulatory update
  • Date: 7/13/2012

Tax treaty beneficial ownership clarifications issued 

China alert - Issue 15, July 2012


In October 2009, the State Administration of Taxation (SAT) of the People’s Republic of China (PRC) issued Guoshuihan [2009] No.601 (Circular 601) to address the beneficial ownership issue in the context of PRC income tax treaties (double taxation agreements (DTAs)). Circular 601 emphasises that a non-resident recipient of certain China sourced passive income must be the beneficial owner of such income before it can enjoy treaty benefits under the relevant DTA with China. This is in addition to the usual requirement that the non-resident recipient must be a tax resident of the DTA partner state. Circular 601 then sets out a series of ‘adverse factors’ that will be considered by the PRC tax authorities in determining whether the non-resident recipient is the beneficial owner or not. The factors require, inter alia, that sufficient ‘substance’ (in terms of staff, premises and business operations) be in evidence at the level of the DTA benefits claimant.

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