Announcement on the Recognition of the “Beneficial Owner” in Tax Agreements

(Issued by the State Administration of Taxation on, and effective as of, June 29 2012.)

SAT Announcement [2012] No.30

Pursuant to the State Administration of Taxation, Circular on How to Interpret and Recognise the “Beneficial Owner” in Tax Agreements (Guo Shui Han [2009] No.601), we hereby make the following announcement on the recognition of the status of beneficial owners:

1. When determining the beneficial owner status of residents of the other contracting state, a comprehensive analysis and judgement shall be carried out based on the factors specified in Article 2 of document Guo Shui Han [2009] No.601, and a negative or affirmative determination shall not be rendered merely because of the existence of a certain adverse factor or the non-existence of “the purpose of avoiding or reducing taxes, or diverting or aggregating profits” as specified in Article 1.

2. The understanding and judgement of the factors as specified in Article 2 of document Guo Shui Han [2009] No.601 may be carried out through an analysis and determination based, depending on the different types of income, on documentation such as the company's articles of association, financial statements, fund flow records, minutes of board meetings, board resolutions, allocation of human and material resources, relevant expenses and expenditures, functions and risk assumption, loan contracts, licensing and licence transfer contracts, patent registration certificates and proofs of copyright ownership, as well as agency contracts or designated payment collection contracts.

3. If the income derived from China by a resident of the other contracting party that is applying for tax agreement treatment (the Applicant) is dividends and such Applicant is a listed company in the other contracting party or is 100% directly or indirectly owned (excluding the situation where the shares are indirectly held through a resident enterprise of a third-party country or region and that is not a resident of China or the other contracting party) by a company that is also a resident of and listed in the other contracting party and the dividends are income derived from the shares held by the listed company, the Applicant's beneficial owner status may be recognised directly.

4. If an Applicant has its income collected by an agent or designated collector, etc. (Agent) on its behalf, regardless of whether such Agent is a resident of the other contracting party, the recognition of the Applicant's beneficial owner status shall not be affected thereby. However, the Agent shall state to the tax authority that it does not have beneficial owner status. For the format of the Agent's statement, see the attachment.

5. If a tax authority recognises beneficial owner status pursuant to Article 4 hereof and approves the relevant tax agreement treatment, and if the country or region where the Agent is resident has executed a tax agreement or information exchange agreement with China, it may, as required, gain access to relevant information on the Agent through information exchange. If beneficial owner status of the Agent may be determined through information exchange, the tax authority may modify the preceding approval result, and shall charge the original beneficial owner back taxes and impose a late payment fine in accordance with relevant provisions.

6. When a competent tax authority is handling a relevant examination and approval matter and is unable to render a decision by the specified period of time due to a difficulty in determining beneficial owner status, it may render a decision to provisionally deny tax agreement treatment pursuant to Article 17 of the State Administration of Taxation, Circular on the Issuance of the Measures for the Administration of the Treatment for Which Non-tax-residents are Eligible Under Tax Agreements (Trial Implementation) (Guo Shui Fa [2009] No.124). If it is determined after examination and approval that the Applicant is eligible for the tax agreement treatment, the tax authority shall refund the relevant tax amount to the Applicant.

7. Pursuant to document Guo Shui Fa [2009] No.124, if, in handling a relevant examination and approval matter, a case where the beneficial owner status of an Applicant is denied is involved, the competent tax authority shall implement the same after reporting it to the provincial-level tax authority and receiving its approval. The provincial-level tax authority shall additionally submit the relevant case handling result to the (International Tax Department of the) State Administration of Taxation for the record.

8. If a taxpayer needs to apply to different tax authorities for recognition of its beneficial owner status and enjoyment of tax agreement treatment in respect of similar matters, it may explain the relevant matters to the relevant tax authorities and the relevant tax authorities shall render a handling decision after reaching a consensus through consultations. If the relevant tax authorities are unable to reach a consensus, they shall report the same upward to their common higher-level tax authority for handling and explain the details of their consultations.

9. This Announcement shall be effective as of the date of issuance.

Attachment: Statement of an Agent or Other Such Party Confirming that it Does Not Have Beneficial Owner Status (omitted)