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Sep 2015, Issue 40

China introduces self-assessment mechanism to facilitate tax treaty benefits claims


To respond to the Chinese State Council's Decision in May 2015 on cancelling the application and pre-approval process for claiming tax treaty benefits, the State Administration of Taxation (SAT) promulgated the Administrative Measures on Non-resident Taxpayers Claiming Tax Treaty Benefits (SAT Public Notice 2015 No.60, PN 60) on 11 September with an effective date of 1 November 2015. The new Measures are to supersede the prevailing Guoshuifa [2009] No.124 (Circular 124). PN 60 introduces a new mechanism of self-assessment on the eligibility for tax treaty benefits (reduced taxation or exemption under the relevant tax treaties) by non-resident taxpayers. The pre-approval process or record-filing acknowledgement from the Chinese tax authorities is no longer necessary. Instead, non-resident taxpayers and their withholding agents will be required to file certain prescribed forms and other supporting documents when performing tax filing to justify their claims for the tax treaty benefits.

As an important step to streamline tax administration, this cancellation of pre-approval process or record-filing acknowledgement from the Chinese tax authorities would certainly simplify the prevailing tax treaty benefits claiming procedures. However, the new self-assessment mechanism would demand not only the non-resident taxpayers but also their withholding agents to possess profound knowledge of the tax treaty and tax filing procedures to make an appropriate assessment.

Furthermore, this new mechanism, essentially changing from pre-approval methodology to post-tax filing examinations by the Chinese tax authorities, would likely bring uncertainties and challenges to non-resident taxpayers. To mitigate the relevant tax risks of being challenged on treaty shopping or treaty abuse, non-resident taxpayers or their withholding agents should ensure proper documentation and preferably early communication with their in-charge tax bureaus, where possible.

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Peter Ng
China and Hong Kong Tax Leader
Hong Kong
Tel: +[852] 2289 1828 Email
Edwin Wong
Partner
Beijing
Tel: +[86] (10) 6533 2100 Email
Amy Cai
Priority Services Leader
Shanghai
Tel: +[86] (21) 2323 3698 Email
Charles Lee
China South Tax Leader
Shenzhen
Tel: +[86] (755) 8261 8899 Email