The guidance—Announcement 30 (29 June 2012)—has been posted on several government and provincial websites, but is pending official release by the State Administration of Taxation.
In October 2009, the State Administration of Taxation issued guidance—Guoshuihan  No.601 (Circular 601)—to address the beneficial-ownership issue in the context of China’s income tax treaties.
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 income tax treaty with China. This rule is in addition to the standard requirement that the non-resident recipient must be a tax resident of the treaty-partner country.
Circular 601 also establishes a series of “adverse factors” that will be considered by the Chinese 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 tax treaty-benefits claimant.
However, it has been uncertain as to how these adverse factors are to be applied—specifically, whether the status and substance of group companies may be taken into account to support an assertion of beneficial ownership by the claimant of the treaty benefits. Also, when the registered owner of equity interest in a PRC company is merely an agent (i.e., one acting on behalf of the true beneficial owner), it has been unclear whether the true beneficial owner could claim relief under the income tax treaty provisions.
Announcement 30 provides that a determination of whether there is beneficial ownership is made on a totality of factors. No one factor outweighs other factors.
Announcement 30 stresses the importance of reviewing various legal and financial documents, including articles of association, financial statements, board minutes and resolutions, functional analyses, legal contracts, asset ownership certificates, and invoice registers.
While the State Administration of Taxation as of 12 July 2012 had not made an official pronouncement on the publication of Announcement 30, it appears to tax professionals in China that the version of the guidance being circulated represents a final version of draft items intended to clarify the rules under Circular 601.
Read a July 2012 report [PDF 260 KB], prepared by the KPMG member firms in Hong Kong and China: Tax treaty beneficial ownership clarifications issued