Interpretation of Circular No.698

Jian Sun


Background

　In accordance with provisions of the new Law of Enterprise Income Tax (2008) and Implementing Regulations (2008), whether the income from equity investment asset transfer is derived from PRC shall be classified by the domicile of the invested enterprise, so as to decide whether should pay the income tax in PRC jurisdiction. Whereas, the State Administration of Taxation of PRC (SAT) has not clearly addressed the condition that whether the income from foreign enterprises’ transfer of Chinese domestic enterprises shares they indirectly held by the transfer of offshore holding companies falls into Chinese jurisdiction or should pay income tax in PRC.

The promulgation of Circular No.698 Guoshuihan 2009

　On December 10, 2009, the State Administration of Taxation (SAT) promulgated the Circular on Regarding Strengthening the Administration of Income Tax of Sale of Shares by Non-Resident Enterprises, (Guoshuihan [2009] 698) .

　Provisions in Circular No.698 clearly addresses that prevent the foreign enterprises from evading income tax obligation by indirect transfer of shares of Chinese resident enterprises through arrangements like abusing the corporate governance.

　In accordance with the provisions in Circular No.698, foreign investor whose indirect transfer of Chinese residence enterprises falling into the following two catalogues:

(1) The real tax burden rate of the jurisdiction where the offshore holding company transferred is incorporated is less than 12.5%; or

(2) The jurisdiction where the offshore holding company transferred is incorporated does not acquire income tax from foreign-sourced income.

　shall submit the relevant documents as below to the local taxation bureau where the Chinese domestic enterprises being transferred located within 30 days after the execution of Share Transfer Agreement to prove the aforesaid indirect share transfer is for reasonable commercial purpose.

(1) Share Transfer Contract or Agreement.

(2) The relationship between Foreign Investors and Offshore Holding Companies transferred by Foreign Investors regarding finance, operation, purchase and sale, etc;

(3) The situation of the operation, personnel, finance, property of the offshore holding companies transferred by foreign investors;

(4) The relationship of the offshore holding companies transferred by foreign investors and Chinese domestic enterprises regarding finance, operation, purchase and sale, etc.

(5) The Explanations of reasonable commercial objectives of establishment of offshore holding companies by foreign investors.

(6)Other relevant documents required by Taxation Authorities.

　Where administrating tax authorities, upon review and examination of the documents submitted by foreign investors, deem such offshore holding company to be a vehicle incorporated for the purpose of tax evasion, it has the power to re-classify the share transfer transaction in according to the nature of economies, deny the existence of offshore holding company and impose 10% income tax to the transfer of shares after the examination by the State Administration of Taxation.

　In the second place, when non-resident enterprises transfer Chinese resident enterprises to affiliated parties in the unfair price compared to the fair and independent transaction to reduce the taxable income, tax authorities have the power to adjust the income by proper methods.

　In the third place, provisions contained in Circular 698, share transfer income refers to difference between share transfer price and share cost. Share transfer price includes all sum received by share transfer assignors. In the event of invested enterprises have non-allocated profit or various funds after tax profit drawing, the invested enterprises shall not deduct aforesaid income sum from share transfer price. Cost of shares refers to real contribution sum paid by share transfer assignor to Chinese domestic company, or transfer sum paid to original assignors in the time when assignors purchased these shares.

Influence to the Oversea IPO’s and M&A

　As the Circular 698 enforced from January 1, 2008, non-resident enterprises shall review the transfer situation of Chinese domestic enterprises to decide the next step whether to calculate and submit the Enterprise Income Tax (direct transfer) or to submit the relevant document to Local Tax Authorities in the place where Chinese domestic enterprises located (indirect transfer).


国税函 2009（698）号解读
Interpretation of Circular No.698

发布背景
浙江省杭州市人民政府


杭州市民办科技机构管理暂行规定　

杭政〔1988〕32号　


正文：








(1988年8月17日杭州市人民政府发布,1997年12月5日杭州市人民政府修订)



　　第一条 为加强对杭州市民办科技机构的管理,促进民办科技机构健康发展,维护技术市场的正常秩序,根据国家有关规定,结合本市实际情况,特制定本规定。
　　第二条 凡杭州市境内的民办科技机构均应遵守本规定。
　　第三条 杭州市科委及各县(市)科委对本市、县(市)民办科技机构实行监督和指导。
　　第四条 本规定所称民办科技机构是指:
　　(一)科技人员在辞职、停薪留职后创办的或由离退休科技人员、闲散科技人员创办的集体、私营、个体的科学研究、技术服务机构;
　　(二)企事业单位之间联办的人、财、物独立的集体科技机构。
　　第五条 申请成立民办科技机构按市科委、市工商行政管理局的规定办理。
　　第六条 民办科技机构可以从事以下业务:
　　(一)对新产品、新材料、新技术、新设备进行研究、开发、应用、推广;
　　(二)对引进的技术、科研成果进行消化、吸收和推广;
　　(二)生产和销售自己研制的新产品、技术软件,同时可以经营配套的技术装备和经核准的新产品;
　　(四)从事技术信息、技术咨询、技术培训等技术服务;
　　(五)从事其他技术贸易活动。
　　第七条 民办科技机构从事上述各项业务活动,必须按照《中华人民共和国技术合同法》有关规定签订合同,并按照《浙江省技术市场管理条例》和《杭州市技术合同登记管理办法(试行)》办理登记备案手续。
　　第八条 民办科技机构应当在银行或者其他金融机构开立帐户,并可按国家有关规定申请贷款。
　　第九条 民办科技机构凡具备条件的,均可向市、县(市)科委申请承担国家或地区计划任务和接受委托项目。
　　第十条 民办科技机构应向当地税务部门办理税务登记,依法纳税,并使用税务部门统一监制的发票。
　　第十一条 民办科技机构可以根据需要招聘职工。招聘职工应签订劳动合同。
　　第十二条 民办集体、私营、个体科技机构的技术贸易收入,按照有关税法规定,交纳所得税和个人收入调节税,并可按照税法规定的条件和权限申请减免所得税。
　　第十三条 民办科技机构取得的科技成果,可以申请专利和申报科技进步奖。
　　第十四条 民办科技机构的科技成果鉴定,由市科委或其他有关部门主持进行。未经鉴定或经鉴定不合格的,不得推广应用,不得投放技术市场。
　　第十五条 民办科技机构应根据国家有关规定对职工实行奖惩,并应为职工办理社会保险和医疗保险。
　　第十六条 民办科技机构有权拒付任何部门或单位的不合理收费和摊派。
　　第十七条 民办集体科技机构,可根据实际工作需要,聘任一定的专业技术职务。技术职务的评审工作应按国家有关规定办理。
　　第十八条 有条件的民办科技机构,可以承包或租赁其他企业。 第十九条 民办科技机构可自主决定内部机构设置。
　　第二十条 私营、个体民办科技机构,在依法缴足税款的前提下,可以自主决定工资制度和利润分配形式。
　　第二十一条 民办集体科技机构税后纯收入的分配,应有45%作为科技发展基金,30%作为奖励基金,其余部分作为集体福利基金。
　　第二十二条 民办科技机构应当遵守国家有关法律、法规和规章,接受有关管理部门的监督检查。
　　第二十三条 民办科技机构违反国家法律、法规和本规定,市、县(市)科委以及有关管理部门应按照有关规定予以处罚。
　　第二十四条 本规定由杭州市科委负责解释。
　　第二十五条 本规定自发布之日起施行。