Official Reply on Issues of Determining What Constitutes a Permanent Establishment of a Foreign Enterprise Providing Services in China and of the Attribution of the Profits Derived Thereby

关于外国企业在中国境内提供劳务活动常设机构判定及利润归属问题的批复

The Official Reply addresses queries from Provisional Office of the State Administration of Taxation on the definition of permanent establishments of foreign enterprise providing services in the PRC.

Clp Reference: 3210/06.07.19 Promulgated: 2006-07-19

(Issued by the State Administration of Taxation on July 19 2006.):

Guo Shui Han [2006] No.694

Jiangsu Provincial Office of the State Administration of Taxation:

Your Request for Instructions on the Issue of the Attribution of the Profits of Permanent Establishments of Foreign Enterprises Providing Services in China (Su Guo Shui Fa [2006] No.104) has been received. We hereby clarify the issues raised in your document concerning the determination of permanent establishments and the attribution of the profits derived thereby as follows:

1. In actual practice, the provision in tax agreements on permanent establishments that specifies "the providing of services, including consultancy services, for the same project or affiliated project(s) by an enterprise of a Contracting State through employees or other engaged personnel in the other Contracting State, provided that such activities continue for a period or periods aggregating more than six months within any twelve-month period" means that if a foreign enterprise has not established an organization or premises in China, only assigning its employees to China to provide services, including consulting services, for relevant project(s), once the actual working hours in China of such employees continue for a period or periods aggregating more than six months within any twelve-month period, such enterprise may be deemed to have a permanent establishment in China.

2. If a project lasts for several years and the employees of the foreign enterprise are assigned to China to provide services for only a certain period of time, and such period of time exceeds six months, while at other times during the project, persons are assigned to provide services in China for a period not exceeding six months, the foreign enterprise shall still be deemed to have a permanent establishment in China. Such permanent establishment shall be defined based on all the services provided for the relevant project(s) in China by such foreign enterprise, and not services only for a certain period of time.

3. When the provision of services for a certain project in China by a foreign enterprise through its employees constitutes a permanent establishment, the profits derived from the services in China for the project shall be deemed profits of the permanent establishment and taxed as such.

(国家税务总局于二零零六年七月十九日发布。)

clp reference:3210/06.07.19
prc reference:国税函 [2006] 694号
promulgated:2006-07-19

国税函 [2006] 694号

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