作者系澳洲会计师公会华东和华中区委员会副会长、普华永道税务合伙人林展霆(Kenny Lam)先生
Tax PlanningOpportunities and Case Sharing for Real Estate Industry
Safe-harbour rule brings convenience in the application of “beneficial ownership” (“BO”) status
---- PwC China Tax Partner, Kenny Lam
Back in October 2009,the State Administration of Taxation (“SAT”) promulgated Circular Guoshuihan[2009] No.601 (“Circular 601”) providing high level guidance on the determination of BO status for the purpose of claiming treaty benefit by treaty residents in respects of China-sourced dividends, interest and royalties under the Sino-foreign Double Taxation Agreements (“DTAs”), including the basic principle of “Substance Over Form” and the seven unfavorable factors inassessing the BO status.
However, since the implementation of Circular 601, treaty resident applicants and Chinese local tax authorities have encountered many technical and practical issues and often ran into disputes on assessing the BO status of the treaty resident applicants.
In June 2012, the SATreleased the long-awaited supplementary notice to Circular 601, i.e. SAT Public Notice [2012] No.30 (“Public Notice 30”) to provide principals in assessment and list out the required documents and evidence in analyzing the unfavorable factors under Circular 601.
Public Notice 30 provides a safe-harbour rule that would bring in convenience with the application of BO status for those qualified companies receiving China-sourced dividend under certain conditions, i.e. a qualified treaty benefit applicant(the direct parent company) can be accepted as BO without the need to go through the vetting process.
The conditions apply for safe-harbour rule include (refer to the diagram 1):
1. Only applicable to dividend income;
2. The immediate recipient of the China-sourced dividend, the listed company and the intermediate holding companies must be 100% related; and
3. The immediate recipient of the China-sourced dividend,the listed company and the intermediate holding companies must be tax residententerprises of the same treaty jurisdiction.
The above conditions bring some limitations in the applicability of the safe-harbour rule. These conditions are not easy to fulfill in the prevailing group structure of most listed companies.
Diagram 1
It is worth to note that the safe harbour rule should be granted in accordance with the tax residency of the holding company, instead of their location of incorporation. Therefore, for those realestate companies whose intermediate holding company and the listed company are not registered in the same country/ jurisdiction, they may be disqualified for the application of the safe-harbor rule.
As illustrated in the example in Diagram 2, the parent company receiving the China-sourced dividendis a BVI-registered company. Its holding company is overseas listed with qualified holding percentage under the requirement of safe-harbour rule. As such, provided that the parent company obtains the Hong Kong tax residency certificate(“HKTRC”), safe-harbour rule shall be applicable and that it can be recognized as the BO of such dividend, and be eligible to apply for treaty benefit under the Mainland and HK DTA for 5% withholding tax rate.
Diagram 2
Possible difficulties encountered in practice and issues to consider:
1. For non-Hong Kong incorporated companies who wish to obtain the HKTRC, they are required to apply for a referral letter with the in-charge Mainland tax authority (refer to the SAT Public Notice [2013] No.53for detail). However, the in-charge Mainland tax authority may be reluctant to issue such referral letter due to their doubt on the eligibility of the applicant for the safe-harbour rule;
2. The in-charge Mainland tax authority may question the sequence order in respect of the year in which the dividend is repatriated and the HKTRC is granted. Further discussion with the tax authority is necessary; and
3. The tax authorities are generally inexperienced with this kind of application. Therefore they are cautious when dealing with such cases. Additional relevant documents will be required before a conclusion is drawn, and the tax authorities may need more time for internal discussion or report to the superior tax authority to seek instruction. It is necessary to take into consideration on these factors in the estimation of the timeframe for the dividend to be received.
*******************************
Note: Please note that the above article is represented as personal opinion, which should not be treated as the companies’opinion by which the person is employed or was once employed.
请注意以上文章仅代表作者个人观点，不代表作者现在或过去所属公司之观点。
欢迎关注澳洲会计师公会上海办事处
微信订阅号: cpaaustraliashanghai
地址: 中国上海南京西路1168号中信泰富广场4003-04室
电话： 8621 22139850
传真： 8621 5292 5589
www.cpaaustralia.com.au
