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China Tax & Investment Express (CTIE)* brings you the latest tax and business announcements on a weekly basis. CTIE provides a synopsis of each announcement including a link that leads you to the full content of the announcement (in Chinese). Please feel free to contact your EY client service professionals for further assistance if you find the announcements have an impact on your business operations.
CTIE does not replace our China Tax & Investment News* which will continue to be prepared and distributed to provide more in-depth analyses of tax and business developments in China.*If you wish to access the previous issues of CTIE and China Tax & Investment News, please contact us.
Tax circulars
► Public notice (PN) regarding the effectiveness and enforcement of the “Agreement between the Government of the People's Republic of China (PRC) and the Government of the Republic of Chile (Chile) for the Elimination of Double Taxation and the Prevention of Tax Evasion and Avoidance with respect to Taxes on Income and its protocol” (SAT PN [2016] No. 79)
Synopsis
On 11 December 2016, the State Administration of Taxation (SAT) released SAT PN [2016] No. 79 (“PN 79”) to announce the Agreement between the PRC and Chile for the Elimination of Double Taxation and the Prevention of Tax Evasion and Avoidance with respect to Taxes on Income (hereinafter referred to as the “PRC-Chile DTA”) and its protocol (hereinafter referred to as the “PRC-Chile Protocol”) signed on 25 May 2015 came into effect on 8 August 2016 and will be applicable to income derived on or after 1 January 2017. (Please refer to CTIE2015023 for details of the PRC-Chile DTA.)
Issue No. 201604923 Dec 2016
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Our observations
The PRC-Chile DTA is the first tax treaty concluded between the PRC and Chile. Points worth noting include:
Residents (Article 4)
According to the PRC-Chile DTA, where a person other than an individual is a resident of both Contracting States and if the competent authorities of the Contracting States cannot reach a mutual agreement regarding the person’s residency, the person shall not be entitled to any relief or exemption from tax provided under the PRC-Chile DTA.
Permanent Establishment (PE) (Articles 5 and 7)
Construction PE
The PRC-Chile Protocol stipulates the following provisions for the sole purpose of determining whether a presence has exceeded the six-month period referred to in Article 5 (3a) (construction PE clause), which particularly for the second paragraph has indeed broadened the scope of PE exposure to other connected parties as compared with other DTAs.
i) where an enterprise of a Contracting State carries on activities (including supervisory and exploration activities) in the other Contracting State at a place that constitutes a building site, a construction, assembly or installation project and these activities are carried on during periods of time that do not last more than six months, and
ii) connected activities (including supervisory and exploration activities) are carried on at the same building site, construction, assembly or installation project during different periods of time, by one or more enterprise connected with the first-mentioned enterprise, these different periods of time shall be added to the period of time during which the first-mentioned enterprise has carried on activities at that building site, construction, assembly or installation project. Article 5(6) further explains that a person shall be considered to be connected to an enterprise if one possesses at least 50% of the beneficial interests in the other (or, in the case of a company, at least 50% of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company) or if another person possesses at least 50% of the beneficial interest (or, in the case of a company, at least 50% of the aggregate voting power and value of the company’s shares or of the beneficial equity interest in the company) in the person and the enterprise. In any case, a person shall be considered to be connected to an enterprise if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same persons or enterprises.
Service PE
Provisions related to the service PE under the PRC-Chile DTA are quite different from other DTAs, i.e., provision of services in the other Contracting State are conducted by an enterprise through one or more individuals rather than through employees or other personnel engaged by the enterprise for such purposes. The PRC-Chile Protocol stipulates the following provisions for the sole purpose of determining whether a presence has exceeded the 183-day period as referred to in Article 5(3b) (service PE clause); the duration of activities under Article 5(3b) shall be determined by aggregating the periods during which activities are carried on in a Contracting State by connected enterprises, provided that the activities of the enterprise in that State are substantially the same as the activities carried on in that State by its connected enterprises. The period during which two or more connected enterprises are carrying on concurrent activities will be counted only once for the purpose of determining the duration of activities.
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Agency PE
The agency PE refers to the activities that a person undertakes for an enterprise where the person is acting in a Contracting State on behalf of the enterprise, and in doing so, habitually concludes contracts, or negotiates the material elements of contracts, unless otherwise prescribed (e.g., the activities of such person are limited to those of a preparatory or auxiliary character mentioned in Article 5(4), or the person carries on business in the Contacting State as an independent agent and acts for the enterprise in the ordinary course of that business). The PRC-Chile DTA specifies the contracts as follows:
a) in the name of the enterprise, or
b) for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use, or
c) for the provision of services by that enterprise.
However, where a person acts exclusively or almost exclusively on behalf of one or more enterprises to which it is connected, that person shall not be considered an independent agent.
Determination of the profits of a PE
The PRC-Chile Protocol specifies the following provisions with reference to Article 7 (Business Profits):
► In applying paragraphs 1 and 2 of Article 7, income or profits attributable to a PE may, notwithstanding that the PE has ceased to exist, be taxed in the Contracting State in which it was situated.
► When computing the taxable income of that PE situated in a Contracting State, the deductibility of expenses which are attributable to that PE shall be determined under the domestic law of that State, provided that it is in line with the principle of Article 7(3) and Article 23(3).
► It is understood that only so much of the profits shall be attributable to a PE as correspond to the functions performed, the assets used and the risks assumed by the PE, rather than attributing the total profits arising from the project, the activities or the services.
Withholding income tax rate on dividends (Article 10)
According to the PRC-Chile DTA, the Chilean tax residents deriving dividends from the PRC should be subject to withholding income tax at the rate not exceeding 10%. As further specified in the PRC-Chile Protocol, the provisions of Article 10(2) shall not limit the application of the Additional Tax payable in Chile provided that the First Category Tax is fully creditable in computing the amount of the Additional Tax. In this respect, the SAT’s official interpretation of PN 79 further elaborates that the treaty benefits of the PRC-Chile would allow full deduction of First Category Tax in computing the amount of the Additional Tax. In case the treaty benefits cannot be applied, only 65% of the First Category Tax can be credited in calculating the amount of the Additional Tax.
Withholding income tax rates on interest (Article 11)
Unlike many other DTAs that grant tax exemptions to interest derived by qualifying financial institutions (e.g., certain state-owned policy banks in the PRC), the PRC-Chile DTA provides for a 4% withholding income tax rate on interest derived from loans granted by banks, insurance companies and other financial institutions.
For other situations, according to the PRC-Chile DTA, for a period of two years from the date on which the provisions of Article 11(2) take effect (i.e., 2017 and 2018), the rate of 15% shall apply and from 2019 and onwards, the rate of 10% shall apply.
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Withholding income tax rates on royalties (Article 12)
The PRC-Chile DTA grants a 2% withholding income tax rate for royalties arisen in a Contracting State and paid to a resident of the other Contracting State for the use of, or the right to use, industrial, commercial or scientific equipment (10% of the gross amount of the royalties in all other cases.). This DTA is noteworthy in establishing the lowest withholding income tax rates on royalties of any DTA concluded between the PRC and a foreign jurisdiction. This will promote leasing related to industrial, commercial and scientific equipment between the two countries.
Capital gains on shares (Article 13)
Article 13(5) provides for a stricter rule for the taxability of capital gains derived by a resident of a Contracting State from the alienation of shares in a non-land-rich company that is a resident of the other Contracting State. Under many DTAs concluded by the PRC, such gains may be taxed in the other Contracting State provided that the first-mentioned resident, at any time during a prescribed period preceding the alienation, has owned at least 25% of the shares of that company. However, no such percentage limitation on the share ownership preceding the alienation is granted in the PRC-Chile DTA, which will expand the scope of capital gains subject to taxes in the other Contracting State.
Furthermore, Article 13(6) provides that, notwithstanding the above provisions, gains derived by a resident of a Contracting State from the alienation of shares of a company that is a resident of the other Contracting State and whose shares are substantially and regularly traded on a recognized stock exchange located in that other Contracting State shall be taxable only in the first-mentioned State if the sales of shares meet certain conditions. For instance, where a PRC resident derived gains from the alienation of shares of a Chile resident company and whose shares are substantially and regularly traded on a recognized stock exchange located in Chile, the relevant gains shall be taxable only in China if the sales of shares meet certain conditions.
Elimination of double taxation (Article 22)
The PRC-Chile DTA prescribes that, where the income derived from Chile is a dividend, the Chilean tax paid shall, for purposes of direct credit, refer to the amount of the Additional Tax after the First Category Tax is deducted (please refer to the introduction of tax scheme in Chile as attached in the SAT’s official Interpretation of PN 79 for details).
Anti-abuse provisions (Article 26)
The PRC-Chile DTA includes a specific anti-abuse provision that denies DTA benefits when one of the principle purposes of any arrangement or transaction is to obtain those benefits, unless it is established that granting the benefits in these circumstances would be in accordance with the objective and purposes of the relevant provisions of this DTA. As further elaborated in SAT’s interpretation of PN 79, the determination on whether a taxpayer can apply to the treaty benefits under the PRC-Chile DTA would be focus on the following:
► Whether the resident of a Contracting State applicable to the PRC-Chile DTA is “a qualified person”
► Main purpose test
► Whether it falls into the anti-abuse clauses regarding PE established in a third country
Article 5 of the PRC-Chile Protocol
Article 5 of the PRC-Chile Protocol states that a pension fund of any public or private pension funds in either Contracting State is not considered a resident of a Contracting State and cannot enjoy benefits under the PRC-Chile DTA.
The SAT’s official Interpretation of PN 79 also attaches an introduction of tax scheme in Chile. Relevant investors and global enterprises that intend to invest or expand their investments in the PRC/Chile are encouraged to study the PRC-Chile DTA and its Protocol as well as SAT’s official interpretation for details.
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You can click this link to access the full content of PN 79:http://www.chinatax.gov.cn/n810341/n810755/c2410254/content.html
You can click this link to access the full content of the Interpretation of PN 79 from the SAT:http://www.chinatax.gov.cn/n810341/n810760/c2410110/content.html
You can click this link to access the full content of the PRC-Chile DTA and the PRC-Chile Protocol: http://www.chinatax.gov.cn/n810341/n810770/c1644352/content.html
► PN regarding Corporate Income Tax (CIT) refund issues related to Land Appreciation Tax (LAT) settlement for property developers (SAT PN [2016] No. 81)
Synopsis
According to SAT PN [2010] No. 29 (“PN 29”, i.e., PN regarding CIT treatment for property developers before de-registration), overpaid CIT due to losses incurred by property developers during LAT settlement that have not been made up by the time (the property developers apply for de-registration) may be refunded upon its application of refund is endorsed by the supervising tax authorities. However, in practice, property developers may not apply for de-registration in a short period upon the completion of sales, this may result in nonrefundable overpaid CIT. In this respect, the SAT released SAT PN [2016] No. 81 (“PN 81”) on 9 December 2016 to improve the regulatory practice in this regard.
Calculation of CIT refund
► PN 81 states that the timing for the application of CIT refund shall be after the completion of LAT settlement for all real estate development projects. In this respect, where a real estate developer completes the LAT settlement for its real estate development projects and has no subsequent real estate development projects (including projects under development and projects related to the winning bid), the real estate developer may apply for a CIT refund for the losses incurred in the current year due to the LAT settlement.
► In the same manner as the details prescribed in PN 29, the amount of LAT paid by real estate developers for real estate development projects should be allocated to each year during the development of the project based on the ratio of annual sales1 divided by total sales in each year. The calculation formula is as follows:
LAT allocated to each year = Total LAT payment x (sales of the year ÷ total sales of the project)
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For illustration purposes, the SAT has made the following example in its official interpretation of PN 81:
A real property developer began the construction of a real estate project in January 2014 and completed the construction and sales of the project in October 2016. The real property developer performed the LAT settlement in December 2015 and paid LAT for RMB11 million for the whole real estate project. Among these, the amounts of LAT paid during year 2014 to 2016 are RMB2.4 million, 3 million, and 0.6 million respectively, an additional RMB5 million was paid for the LAT settlement in 2016. The sales derived from the real estate project from years 2014 to 2016 are RMB120 million, RMB150 million and 30 million. CIT paid from years 2014 to 2016 are RMB0.45 million, 3.1 million and 0. The real estate developer is in loss position for the 2016 annual CIT filing and the deferred tax asset is RMB4 million. The real estate developer has no subsequent real estate development project and therefore proposes to apply for a CIT refund:
Application for CIT refund
According to PN 81, for the application of CIT refund, the real estate developer should provide written documents to explain the calculation of CIT refund, including the amount of LAT paid, sales derived from the project, annual sales derived from the project for the relevant years, allocation of LAT and LAT deducted for CIT purposes, the applicable CIT rates for the relevant years as well as status of any subsequent projects.
Effectiveness of PN 81 and treatments for overpaid CIT in the preceding years
Unit RMB2014 2015 2016
Prepaid LAT 2.4M 3M 0.6M
Additional LAT paid － － 5M
LAT allocation to
each year
4.4M (i.e., 11M × (120M
÷ 300M))
5.5M (i.e., 11M × (150M ÷
300M))
1.1 M (i.e., 11M × (30M ÷
300M))
Adjustments to CIT
payable
-2M
(i.e., 2.4M－4.4M)
－2.7
(i.e., 3M－5.5M－0.2M2)
4.5M
(i.e., 0.6M＋5M－1.1M)
CIT payable after
the adjustments－ － 0.5
(i.e.,－4M＋4.5M)
CIT refundable 0.5M (i.e., 2M × 25%) 0.675M (i.e., 2.7M × 25%) －
CIT paid 0.45M 3.1M 0
CIT actually
refunded to the real
estate developer
0.45M 0.675M －
Losses carried
forward (upon
adjustment)
－0.2M (i.e., (0.45M－
0.5M)÷25%)－ －
Additional CIT
payable－ － 0.125M
(i.e., 0.5M × 25%)
Aggregative CIT
refund－ － 1M (i.e., 0.45M＋0.675M－
0.125M）
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PN 81 became effective on its promulgation date, i.e., 9 December 2016, and revoked PN 29 accordingly. Real estate developers that have already completed LAT settlement prior to the effectiveness of PN 81 but have losses due to LAT settlement that have not yet been offset upon the promulgation of PN 81 may apply for a CIT refund according to PN 81.
Relevant enterprises should seize the opportunity to assess whether PN 81 is applicable to their situation and apply for the CIT refund if applicable. If in doubt, consultation with tax professionals would always be most helpful.
1 The amount of sales as prescribed in PN 81 includes deemed sales of real estate projects but excludes the sales of normal resident properties where appreciation against deductible items is no more than 20%.
2 The 0.2M represents loss brought forward from 2014 upon adjustment.
You can click this link to access the full content of PN 81:http://www.chinatax.gov.cn/n810341/n810755/c2410286/content.html
You can click this link to access the full content of the Interpretation of PN 81 from the SAT:http://www.chinatax.gov.cn/n810341/n810760/c2410193/content.html
You can click this link to access the full content of PN 29:http://www.hb-l-tax.gov.cn/fgk/qysdsl/201101/t20110114_54251.shtml
► PN regarding certain issues related to CIT (SAT PN [2016] No. 80)
Synopsis
In order to clarify certain tax-related issues for annual CIT filing purposes, on 09 December 2016, the SAT released SAT PN [2016] No. 80 (“PN 80) to specify its views on certain issues related to CIT, including the deduction of accidental life insurance premium for CIT purposes and CIT treatments related to the transfer of assets by enterprises.
Deduction of accidental life insurance premiums for CIT purposes
According to PN 80, enterprises are allowed to deduct accidental life insurance premiums incurred for employees who travel by public transportation during business trips.
CIT treatments related to enterprises’ transfer of assets
The SAT issued Guoshuihan [2008] No. 828 (“Circular 828”) in October 2008 to clarify special circumstances where revenue should or should not be recognized, including its views on the recognition of deemed sales revenue. Circular 828 explicitly lists out six situations3 under which deemed sales revenue shall be recognized for CIT purposes. As to the value of deemed sales to be recognized, Circular 828 lays out that, for self-manufactured products, the deemed sales revenue should be based on the contemporaneous pricing for selling the same to a third party; and for assets purchased from outside vendors, the deemed sales revenue can be based on the purchase price.
Nevertheless, with PN 80 coming into effect, the provisions on the recognition of deemed sales revenue as mentioned above shall be abolished. PN 80 stipulates that both of the above deemed sales revenue shall be recognized based on the fair value unless otherwise specified.
According to the SAT’s interpretation on PN 80, for qualifying transfers of equities or assets that are entitled to special tax treatment as prescribed in Article 3 of Caishui [2014] No. 109 (“Circular 109”, i.e., Notice regarding CIT treatments for promotion of company restructuring), the tax basis for equities or assets obtained by transferees should be the original net book value of the equities or assets. (For more details of Circular 109, please refer to China Tax & Investment News No. 2015001 and CTIE2015002).
Effective date
PN 80 shall be applicable to annual CIT filing for year 2016 and onwards.
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Our observations
The CIT treatments conducted by tax authorities at the local level for accidental life insurance premiums differed in practice prior to the announcement of PN 80. For example, the Hebei Local Tax Bureau clarifies through Heibei Local Tax Bureau PN [2014] No. 4 that, same kind of accidental life insurance premiums mentioned above can be treated as traveling expenses thus deductible for CIT purposes. However, in the reply to the query as to whether such accidental life insurance premiums incurred for long-distance business trips are deductible for CIT purposes, the Jiangsu Local Tax Bureau stated that such premiums shall not be deductible for CIT purposes4.
Referring to issues related to deductibility of commercial insurance premiums for CIT purposes, the Implementation Rules on CIT Law5 stipulates that, premiums paid on commercial insurance policies for investors and employees are not tax deductible unless related to occupational safety or approved by the Ministry of Finance (MOF) or SAT. However, the MOF/SAT did not list out the detailed commercial insurance premiums that can be deducted for CIT purposes nor define clearly what is to be covered as occupational safety, which may give rooms for different interpretation and practices at local level.
With the effectiveness of PN 80, it has been made clear that such specific accidental life insurance premiums incurred are eligible for CIT purposes. It is definitely good news to businesses! That said, enterprises need to follow all guidelines in place in order to receive the benefits of this new policy.
PN 80 provides that the deemed sales revenue shall be determined based on the fair value of the assets given away unless otherwise specified. However, it has not made clearly the meaning of “fair value”, whether it refers to the market price, the price stated in a valuation report, or other prices constituted in specific ways. Unless further clarifications provided, local practices may vary.
The 2016 annual CIT filing will take place from 1 January 2017, taxpayers are suggested to read PN 80 carefully and strongly recommended to stay close with their tax consultants and proactively communicate with tax authorities so as to get well prepared to respond to the relevant tax compliance matters.
3 These six situations include: giving away of goods for market promotion, entertainment, employee welfare, profit distribution and donation, as well as other ways of altering the title of ownership of an asset.
4 Source: http://pub.jsds.gov.cn/art/2015/10/21/art_3561_781594.html
5 Article 37
You can click this link to access the full content of PN 80:http://www.chinatax.gov.cn/n810341/n810755/c2410266/content.html
You can click this link to access the full content of Circular 109:http://www.chinatax.gov.cn/n810341/n810755/c1451490/content.html
► Notice regarding the “Regulations on Accounting Treatments related to Value-added Tax (VAT)” (Caikuai[2016] No. 22)
Synopsis
To cope with the implementation of Caishui [2016] No. 36 (“Circular 36”, i.e., Notice regarding the final stage of the VAT pilot arrangements), the MOF released Caikuai [2016] No. 22 (“Circular 22”) on 3 December 2016 to adjust certain accounting treatments related to VAT.
According to Circular 22, the accounting item of “Business Tax (BT) and surcharges” (营业税金及附加) is adjusted as “taxes and surcharges” (税金及附加) to record Consumption Tax, Urban City Construction Tax, Resources Tax, Education Surcharge, Real Estate Tax (RET), Urban Land Usage Tax (ULUT), Vessel and Vehicle Usage Tax (VVUT) and Stamp Duty (SD). The item of “Business Tax and surcharges” on Profit and Loss Account is renamed as “taxes and surcharges” accordingly. In this respect, RET, ULUT, VVUT and SD should no longer be recorded as administrative expenses.
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In addition, Circular 22 also makes several adjustments, e.g., adds several VAT-related secondary accounting subjects under the accounting subjects of “tax payable”, which include “VAT prepaid” (预交增值税), “input VAT to be credited” (待抵扣进项税额), “input VAT to be verified” (待认证进项税额), “output VAT to be transferred” (待转销项税额), “VAT calculated on a simplified method” (简易计税), “VAT payable for transfer of Financial instruments“ (金融商品应交增值税), “VAT withheld on behalf of other taxpayers” (代扣代交增值税).
Circular 22 became effective on its promulgation date, i.e., 3 December 2016. In case of conflicts between the stipulations of Circular 22 and the prevailing accounting system, the stipulations of Circular 22 shall prevail. For transactions occurring on or after 1 May 2016, i.e., upon the effectiveness of Circular 36, that may affect the amount recorded for assets or liabilities due to the stipulations of Circular 22, the enterprises should adjust the relevant accounts according to Circular 22. The effectiveness of Circular 22 also revoked Caikuai [2012] No. 13 (“Circular 13”, i.e., Regulations on accounting treatments related to the VAT pilot arrangements) and Caikuai [2013] No. 24 (“Circular 24”, i.e. Regulations on accounting treatments related to VAT and BT exemption on Small and Micro-sized Enterprises) at the same time.
Accountants of enterprises should be aware of the relevant adjustments of accounting treatments as prescribed in Circular 22 and act promptly since the annual cut-off day is approaching.
You can click this link to access the full content of Circular 22:http://kjs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201612/t20161212_2479869.html
You can click this link to access the full content of Circular 36:http://www.chinatax.gov.cn/n810341/n810755/c2043931/content.html
You can click this link to access the full content of Circular 13:http://kjs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201207/t20120717_666920.html
You can click this link to access the full content of Circular 24:http://kjs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201312/t20131230_1031039.html
► Notice regarding opinions on certain policies related to the Resource Tax (RT) reform on water resource in Hebei Province (Caishui [2016] No. 130)
Synopsis
Further to Caishui [2016] No. 55 (“Circular 55”, i.e., Provisional Measures for the Pilot Launch of RT Reform on Water Resource), the MOF, SAT and Ministry of Water Resources jointly released Caishui [2016] No. 130 (“Circular 130”) on 1 December 2016 to detail the following issues related to the RT reform on water resource in Hebei Province. (Please refer to CTIE2016019 for details of Circular 55.)
RT on thermal power generation
Water to be used for the cooling of thermal power generation and to flow back to the water source shall be subject to RT based on the actual electric-power output and the applicable RT rate. Water to be used for the cooling of thermal power generation and to be recycling in the cooling tower shall be subject to RT based on the actual consumption of water and the applicable RT rate.
Scope of centralized drinking water projects in rural areas that subject to RT
Centralized drinking water projects in rural areas with capacity to provide drinking water exceeding 1,000 cubic meters per day or for not less than 10,000 persons shall be subject to RT.
RT on dewatering of underground water
Dewatering of underground water for safety reasons related to mining and construction projects shall be subject to RT based on the amount of water drained for the project.
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RT exemptions
► Draining of underground water through self-supply wells by military and police forces shall be exempt from RT.
► Pumped storage power generation shall be exempt from RT.
RT for water supply filed by urban public water supply enterprises
RT for water supply filed by urban public water supply enterprises shall be included in their costs for water supply.
Other issues related to the detailed implementation in this regard, e.g., applicable RT rate for development zones and industrial parks, etc. shall be launched by the provincial government in Hebei separately.
You can click this link to access the full content of Circular 130http://szs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201612/t20161216_2483582.html
You can click this link to access the full content of Circular 55:http://szs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201605/t20160510_1984619.html
http://www.fdi.gov.cn/1800000121_23_73370_0_7.html
You can click this link to access the full content of Order 6:http://www.csrc.gov.cn/pub/shenzhen/xxfw/tzzsyd/ssgs/bgcz/bgxx/201403/t20140317_245582.htm
► Notice regarding the “Administrative Regulations on Approval and Record Filing of Enterprises’ Investment Projects” (State Council Order [2016] No. 673)
► PN regarding the public opinion consultation on the “Administrative Measures for Approval and Record Filing of Enterprises’ Investment Projects (Discussion Draft)”
Synopsis
On 30 November 2016, the State Council released the Administrative Regulations on Approval and Record Filing of Enterprises’ Investment Projects (hereinafter referred to as the “Administrative Regulations”) via State Council Order [2016] No. 673 to regulate the approval and record filing for enterprises’ investments on domestic fixed asset projects (hereinafter referred to as the “projects”). The Administrative Regulations shall become effective on 1 February 2017.
Scope of projects that are subject to approval and record filing
According to the Administrative Regulations, projects that would be subject to approval refer to those involving national security, distribution of nationwide major production forces, strategic resources development and vital public interests. Detailed scope of investment projects that would be subject to government’s approval and the jurisdiction of approval authorities shall refer to the “Catalogue of Investment Projects Approved by the Government”. Projects not falling into the abovementioned scope would then be subject to record filing.
Simplified documentation requirements for projects subject to approval
For projects subject to approval, the Administrative Regulations prescribe that enterprises are only required to submit application letters with relevant certifications if prior approvals are required by the prevailing laws and regulations.
Business circulars
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While verifying an application lodged by an enterprise, the approving government authority should consider whether the proposed project would endanger national security, whether it is in accordance with the relevant development plans, technology standards and industrial policies, etc. In principle, the approval authority should not spend more than 20 working days on the approval process. In the meantime, no one should force the enterprise to engage any third party agency to prepare the application letter for the project. If the approving government authority has to engage any third party to perform evaluation of any proposed project, the service fee charged should be borne by the approval authority.
Simplified documentation requirements for projects subject to record filing
For projects subject to record filing, the Administrative Regulations prescribe that the enterprises should notify the supervising government authorities regarding basic information of the projects, e.g., names of the projects, locations of the construction fields, construction scale, total investment, etc., together with statements issued by the enterprises that the projects are in accordance with the relevant industrial policies via online record filing platform. The record filings are considered complete when the supervising government authorities receive the complete information for the projects. The enterprises would be responsible for the authenticity of information submitted.
On the other hand, the National Development and Reform Commission (NDRC) released a discussion draft on the Administrative Measures for Approval and Record Filing of Enterprises’ Investment Projects (hereinafter referred to as the “Discussion Draft”) on 14 December 2017 to seek public opinions. The Discussion Draft was issued by the NDRC based on revisions on the previous NDRC Order [2014] No. 11 (“Order 11”, i.e., the “Administrative Measures for the Investment Projects to be Approved by the Government”) with newly added contents regarding issues related to the administration of record filing. The Discussion Draft details the documentation requirements, application/verification procedures for approval and record filing, as well as the supervision for enterprises’ investment projects. (Please refer to CTIE2014022 for details of Order 11.)
The consultation of public opinion shall be closed on 13 January 2017. Relevant enterprises should read the Administrative Regulations to understand the new practice to be effective on 1 February 2016 and express their opinions on the Discussion Draft via the official website of NDRC (http://www.ndrc.gov.cn).
You can click this link to access the full content of the Administrative Measures:http://www.gov.cn/zhengce/content/2016-12/14/content_5147959.htm
You can click this link to access the full content of the Discussion Draft:http://www.ndrc.gov.cn/yjzx/yjzx_add.jsp?SiteId=123
You can click this link to access the full content of Order 11: http://www.ndrc.gov.cn/fzgggz/gdzctz/tzfg/201405/t20140526_612904.html
► PN regarding the “Regulations on Exercising Discretion for Tax Administrative Punishment” (SAT PN [2016] No. 78)http://www.tax.sh.gov.cn/pub/xxgk/zcfg/zhsszc/201612/t20161215_429203.html
► Notice regarding the “Work Plan for Extending the Promotion of Adhering to Legal Requirements in Tax Administration during the 13th Five-year Plan Period” (Shuizongfa [2016] No. 169)http://www.tax.sh.gov.cn/pub/xxgk/zcfg/zhsszc/201612/t20161212_429156.html
► Notice regarding Vehicle Purchase Tax exemption for the medical vehicles of the “Healthy Mother Expresses” project in 2016 (Caishui [2016] No.128)http://szs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201612/t20161213_2480961.html
► PN regarding the administrative decision for commodity classification in 2016 (V) (GAC PN [2016] No. 78)http://www.customs.gov.cn/publish/portal0/tab49564/info832560.htm
► PN regarding the decision for 2016 commodity classification (VI) (GAC PN [2016] No. 79)http://www.customs.gov.cn/publish/portal0/tab49564/info833141.htm
Other business, customs and tax related circulars recently announced by central government authorities:
12China Tax & Investment Express
Contact usFor more information, please contact your usual EY contact or one of the following of EY’s China tax leaders.
• Martin Ngai (Beijing) +86 10 5815 3231 [email protected]
• Fisher Tian (Tianjin) +86 22 5819 [email protected]
Office Tax Leaders
• Samuel Yan (Dalian/Shenyang)+86 10 5815 [email protected]
Service Line Tax Leaders
• Travis Qiu (Transfer Pricing)+86 21 2228 [email protected]
• Paul Wen (People AdvisoryServices)+852 2629 [email protected]
• Samuel Yan (Global Compliance & Reporting)+86 10 5815 [email protected]
• Becky Lai (Tax Policy)+852 2629 [email protected]
• David Chan (Transaction Tax)+852 2629 [email protected]
• Jane Hui +852 2629 [email protected]
Author – China Tax Center
Greater China Tax Leader
• Lucy Wang (Qingdao) +86 10 5815 [email protected]
• Vickie Tan (Shanghai)+86 21 2228 [email protected]
• Audrie Xia (Suzhou)+86 21 2228 [email protected]
• Raymond Zhu (Wuhan)+86 21 2228 [email protected]
• Jean Li (Xiamen)+86 755 2238 5600 [email protected]
• Rio Chan (Guangzhou/Changsha) +86 20 2881 [email protected]
• Chuan Shi (Chengdu) +86 21 2228 [email protected]
• Clement Yuen (Shenzhen) +86 755 2502 [email protected]
• Joanne Su (Xi’an)+86 10 5815 [email protected]
• Patricia Xia (Hangzhou)+86 21 2228 [email protected]
• Andrew Chen (Nanjing)+86 21 2228 [email protected]
• Tracy Ho (Hong Kong) +852 2846 [email protected]
• Heidi Liu (Taipei) +886 2275 [email protected]
• Kenneth Leung (Indirect Tax) +86 10 5815 3808 [email protected]
Sector Leaders
• Henry Chan (Financial Services) +86 10 5815 3397 [email protected]
• Alan Lan (Energy & Resources)+86 10 5815 3389 [email protected]
• Martin Ngai (Technology, Media,Telecommunications) +86 10 5815 3231 [email protected]
• Vickie Tan (Life Science)+86 21 2228 [email protected]
• Gary Chan (Real Estate) +86 10 5815 2816 [email protected]
• Audrie Xia (Consumer Products)+86 21 2228 [email protected]
• Walter Tong (Automotive & Transportation)+86 21 2228 [email protected]
• Raymond Zhu (Government & Public Sector)+86 21 2228 [email protected]
• Henry Chan +86 10 5815 3397 [email protected]
• Andrew Choy (International Tax)+86 10 5815 [email protected]
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