The Most recent CFC Case in China
Anti-abuse mechanism increase in the era of BEPS
The CFC rules have been in existence since 1 January 2008 when the Enterprise Income Tax Law took effect in China. The rules were created to prevent Chinese enterprises from leaving profits in low tax jurisdictions through various arrangements without business substance in those jurisdictions. However, these were rarely if ever enforced until 2014 with the case by the Shandong Tax Bureau.
Exceptions for CFC rules include:
Furthermore, a company established in a foreign country in accordance with the legislation of that country may still triggers Chinese taxation, if such foreign entity deemed to have it POEM in China, in which case, such foreign entity will be subject to enterprise income tax in China. The Chinese tax authorities apply the totality of facts when assessing POEM. Such factors include the place of the board meetings, the place where the strategic decisions are made, the place where the board of directors carries out their duties in their position as board of directors, etc. There is no single factor which would determine whether the POEM is in China. To mitigate the POEM risks in China, we would recommend that the business decisions of such foreign entities should not be made in China, and it would be best to consider having all decisions made locally in that foreign jurisdiction or engage local directors.
For further information, please contact:
Neville CenDirector, Business development, Head of private clients – North Asia Amicorp Hong Kong Limited +852 2161 1902 email@example.com
Jinqian (Jane) WangDirector, Corporate structuring and product development Amicorp Hong Kong Limited +86 755 2382 2952 firstname.lastname@example.org
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