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Jul 2013, Issue 16

The New China-Netherlands Tax Treaty: A breakthrough in the treatment for capital gains beneficial to investors

On 31 May 2013, China and the Netherlands entered into a new double taxation agreement (DTA) and protocol to replace the existing DTA which has been in force since 1 January 1989. This new DTA generally follows the trend of new DTAs that China has concluded/re-negotiated in recent years. Furthermore, there is a breakthrough in the capital gains article in this new China-Netherlands DTA. Under the standard DTA, China has taxing rights on gains from the disposal of shares of a property-rich company and/or a Chinese non-property-rich company (the latter applicable only when certain shareholding threshold is met). The new article provides further treaty protection if the shares being disposed of are quoted shares listed in a recognised stock exchange provided that certain conditions are met. This treaty protection for quoted shares is new in China DTAs. From a China tax perspective, this puts Netherlands investors in a better tax position as compared with investors from other jurisdictions.

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Peter Ng
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Shanghai
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Charles Lee
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