Recent PRC Tax Developments Affecting Foreign Investors

Richard Lawrence III is a Partner in our Beijing office.
Yingli Hao is an Associate in our Beijing office.

The People's Republic of China (PRC) State Administration of Taxation (SAT) recently issued two interpretive tax circulars which are likely to have an impact on international tax planning by foreign investors for their China-related investments.

1. State Administration Of Taxation Defines Beneficial Owner

The SAT set forth guidelines for determining beneficial owner status under tax treaties in its Circular on How to Interpret and Recognize the "Beneficial Owner" in Tax Agreements (Guo Shui Han [2009] No. 601) ("Circular 601") issued on October 27, 2009.

Tax treaties between China and foreign countries (including the tax arrangements entered into by Mainland China with Hong Kong and Macao; hereinafter collectively referred to as Tax Agreements) have long contained the concept of a "beneficial owner." For example, in the Agreement between the Mainland