• Service: Tax, Deal Advisory, Mergers & Acquisitions Tax, International Tax
  • Type: Regulatory update
  • Date: 8/28/2014

China - Tax authorities focus more on equity transfers 

August 28: China’s State Administration of Taxation issued guidance intended to enhance and strengthen corporate income tax collection and the tax administration of equity transfers.

The guidance—Guozonghan [2014] No.318 (8 July 2014)—requires local tax authorities to focus more on the tax administration of equity transfer transactions as well as to increase their efforts on tax collection related to equity transfer transactions.

There are specific requirements provided for local tax authorities to establish a data collection mechanism and tax collection management, as well as instructions to focus on transactions that may pose higher risk from tax administration perspective.

KPMG observation

With this guidance, tax professionals expect local tax authorities will look to tighten up the tax administration relating to equity transfer transactions, and thus this could result in an increase in the tax cost of corporate restructuring and share transfer transactions. Also, the guidance could be viewed as signaling challenges with respect to corporate restructuring or equity transfers between related parties based on investment cost or net book value as the equity transfer price. Accordingly, affected enterprises may want to review their completed share transfers from tax reporting and tax compliance perspectives, and reconsider any planned restructuring in order to eliminate or reduce tax risk and control tax costs.

Read an August 2014 report prepared by the KPMG member firm in China: Notice on further strengthening Corporate Income Tax (CIT) collection and administration on equity transfer

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