This year will mark a half-decade since the release of Circular
698. The confluence of local enforcement and increased exits
by off-shore investors may make 2014 its most interesting year.
A Circular 698 Refresher
Prior to Circular 698, the PRC relied on cross-border payment
disclosures to initiate investigations for potential tax
evasion. On 10 December 2009, the State Administration on
Taxation ("SAT") issued its "Notice on Strengthening
the Administration of Enterprise Income Tax on Share Transfer
Income of Non-resident Enterprises No. 698" ("Circular
698") to enforce taxation offshore "indirect equity
transfer" contract made to avoid PRC taxation.
Circular 698 requires disclosure by off-shore investors of
certain indirect equity transfers. An "indirect equity
transfer" is the sale of an off-shore company holding
PRC-resident entities. If the transferred entity is in a
jurisdiction with a tax rate lower than 12.5% or does not tax
overseas income, then
