China Issues New Tax Rules On Enterprise Reorganizations

On April 30, 2009, the Ministry of Finance and the State Administration of Taxation jointly issued the Notice on Certain Issues of Corporate Income Tax Treatment of Enterprise Reorganizations (the "Notice"), Caishui (2009) No. 59. The Notice prescribes Corporate Income Tax ("CIT") treatment for various types of reorganizations, including debt restructurings, acquisitions of equity, acquisitions of assets, mergers, and de-mergers.

Background

Prior to January 1, 2008, various tax reliefs were available for enterprise reorganizations under the old income tax regimes applicable to domestic enterprises, foreign-invested enterprises, and foreign enterprises. On January 1, 2008, the new Corporate Income Tax Law (the "CIT Law") came into effect, unifying the two systems. However, the new tax law is silent on the tax treatment of enterprise reorganizations. Article 75 of the Implementation Rules of the Corporate Income Tax Law provides that unless otherwise prescribed by