1. China Introduces New Tax Measures to Encourage
Outbound Investment
By
Yimian Wu
Shortly after assuming office in 2013, Chinese President Xi Jinping introduced the "One Belt,
One Road" initiative to improve connectivity among 65 countries in Asia and Europe and boost
international trade.
Since then, China's tax authorities have introduced tax measures to support outbound
investment and strengthen information sharing mechanisms, and the State Administration of
Taxation (SAT) recently announced new tax measures to support the One Belt, One Road
initiative.
The new measures include promoting the negotiation and conclusion of tax treaties, improving
tax services by setting up a hotline and individual tax guides for countries involved in the
initiative, and enhancing the mutual information sharing mechanism.
Chinese Companies Looking Ahead
Andrew Zhu, tax partner at Deloitte China, said Chinese companies are concerned about three
things: the business environment in investment destinations, international tax policy, and the
repatriation of offshore profits. In the past, only bigger, state-owned enterprises were interested
in outbound investment, but more and more small and medium-size enterprises are starting to
consider global investment now, he said.
As China's tax policy becomes more developed, some companies are starting to plan for future
repatriation issues, Zhu said. For example, they want to know if there are tax exemptions for
operational losses in their foreign investments, he said.
Danny Kwan, a partner at PricewaterhouseCoopers, said the most common questions are about
holding and financial structures and local tax compliance. Some taxpayers also want to know
how China's controlled foreign corporation rules might affect them, Kwan said.
Sam Li, tax partner at Deloitte, said that among the 65 countries in the One Belt, One Road
initiative, Myanmar, Pakistan, Thailand, Turkey, and Vietnam are among the most popular
investment destinations for Chinese companies.
Because the initiative focuses on connectivity among different regions, Chinese companies
invest heavily in infrastructure projects, including highways, ports, and airports, as well as the
energy sector, Li said. He said China has entered into tax treaties with more than half of the
countries covered in the One Belt, One Road initiative, and that he expects the country to
conclude treaties with more countries in the next two years.
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4. What the SAT Has Done to Support Outbound Investment
Jessica Tien, principal in international tax service at EY, said the SAT's Large Business Tax
Administration Department assists qualifying corporations with tax risk management. Also, both
the SAT and local tax bureaus frequently conduct tax seminars to enhance Chinese taxpayers'
understanding of international taxation matters, she said.
Kwan said that the SAT has also sent tax officers to the multinational Joint International Tax
Shelter Information Centre and that Chinese tax authorities have helped taxpayers negotiate
and resolve MAPs.
Zhu added that China used to tax income from technology and capital at higher withholding
rates to protect its tax revenue base, but with more Chinese companies investing abroad, China
has reduced the withholding tax from 10 percent to 5 percent.
China Strengthens Cross-Border Tax Administration
According to a PwC newsletter, the SAT is now paying more attention to tax information
reported by Chinese enterprises in connection with their outbound investments in recent years.
The newsletter mentions SAT Public Notice [2014] 38 and SAT Public Notice [2014] 63, two tax
rules that require Chinese companies to disclose tax information about their outbound
investments.
Public Notice 38 requires a Chinese resident company to file a CFC information return during
the annual filing process. The companies should also submit Chinese generally accepted
accounting principles financial statements for their overseas subsidiaries, according to Tien.
Li added that the SAT also issued 2015 Bulletin 16 on enterprise income tax issues related to
outbound payments to overseas related parties. Bulletin 16, which reaffirms basic principles and
clarifies administrative requirements for intragroup outbound charges, is part of China's initiative
to align with global efforts to combat tax avoidance.
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