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Jul 2015, Issue 32

New challenges for new/high technology enterprises with cross-border royalty payment


China grants preferential tax incentives to New/High Technology Enterprise ("NHTE") with special requirements on the technology capacity of the NHTEs. This attractive preferential tax treatment is undoubtedly beneficial to NHTEs, but the corresponding requirements on the self-owned intellectual properties ("IP") may make China tax authorities more cautious on the outbound royalty payment of the NHTEs.

China tax authorities are paying more attention to intangible related arrangements among multinational corporations ("MNCs") in recent years. With several circulars and notices publicised to administrate the cross-border royalty payment, NHTE paying overseas technology royalty might become a target for China tax authorities.

In this News Flash, we will share our observations in relation to the challenges on cross-border royalty payments that NHTEs are facing. As the challenges raised by China tax authorities will involve different stakeholders, NHTEs shall monitor and assess the potential risks to improve internal tax risk control and minimise the tax exposures.

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