State Administration of Taxation, Issues Relevant to the Levy and Collection of Individual Income Tax on Taxpayers' Recovery of Transferred Equity Interest Official Reply

Issued: January 28 2005

Main contents: If, after an equity transfer has ended, both parties sign and implement an agreement on the termination of the original equity transfer contract and restoration of equity, it shall be regarded as another transfer of equity interest, and no refund of individual income tax levied and collected from the previous transfer will be granted (Item One). If, due to an arbitration, the implementation of an equity transfer contract that has not been fully performed is terminated and the transferred equity interest restored at the original price, the taxpayer will not be required to pay individual income tax thereon since the transfer of equity interest has not been completed and income not fully realized, and with the dissolution of the equity transfer relationship, return on equity no longer exists (Item Two).
Related legislation: PRC Individual Income Tax Law (Revised), Oct 31 1993, CLP 1994 No.1 p23 and PRC Administration of Tax Collection Law (Revised), Apr 28 2001, CLP 2001 No.5 p12