How China Taxes Indirect Transfers

On 6 February 2015, China's State Administration of Taxation (SAT) issued Public Notice [2015] No. 7 (Public Notice 7) which deals with indirect transfers of Chinese taxable assets. It substantially replaces both Circular 698 and Bulletin 24 and introduces new tax liabilities and responsibilities which are significantly different from the previous rules. Public Notice 7 has retroactive effect to 1 January 2008, and thus affects indirect transfers of shares in Chinese companies which have not yet been decided upon by the Chinese tax authorities. Public Notice 7 may have a bearing on the sale of hotel properties¹ or hotel operating subsidiaries in China if they are to be transferred along with their foreign holding company, where the seller sells the shares of the foreign holding company to a third party buyer. Internal reorganisations, however, may be exempt from Chinese income tax. Public Notice 7 has some positive and quite a number of negative aspects which are