Over the years, it has been a common practice that multinational
companies ("Home Entity") dispatch expatriate employees
("Secondees") to the affiliated enterprise in China
("Host Entity") to hold post as senior management or
other technical position. Usually, the Home Entity and the
Secondees would retain the employment relationship and the Home
Entity continues to pay the salaries and social security
contribution for the Secondee in the home country, which would be
reimbursed by the Host Entity. Since the tax clearance certificate
issued by Chinese tax authority is required when the Host Entity
makes remittance overseas for the reimbursement payment, the tax
authority needs to determine whether the Home Entity constitutes
the establishment/place of business ("taxable presence")
or permanent establishment ("PE") under the relevant tax
treaty under the secondment arrangement, which may result in PRC
Enterprise Income Tax ("EIT") consequence for the Home
Entity.
