How will amendments to China's tax treaty benefits impact listed companies?

Companies might want to restructure to take advantage of the guidelines.

Businesses leveraging on Hong Kong’s strategic position as a gateway to China’s vast market should take note that the release of Public Notice 9 can enable them to benefit from the treaty benefit under the dividends article of the China-Hong Kong Double Tax Agreements, according to PwC Hong Kong tax news flash.

“They may need to consider carrying out a group restructuring in order to leverage on the flexibilities offered by Public Notice 9 in fulfiling beneficial ownership status,” said the accounting and professional services firm. 

Public Notice No.9 issued by the State Administration of Taxation of China (SAT) provides additional guidelines in assessing beneficial ownership status for enjoying treaty benefits under China’s tax treaties.

However, businesses should carefully take into account their investment and business structure to evaluate whether their Hong Kong holding companies are fit to enjoy the treaty benefit under the extended safe harbour rule and same jurisdiction/same treaty benefit rule which were recently introduced in the notice, said PwC. 

The notice extends the scope of the safe harbour rule such that it now applies to listed companies, government or an individual who is a resident of a tax treaty jurisdiction and a company wholly owned directly or indirectly by such listed company, government or individual. 

It similarly introduces the same jurisdiction/same treaty benefit rule such that even if a Hong Kong treaty benefit applicant does not qualify as a beneficial owner, it will still be treated as a BO of the dividends. 

“Under this rule, any immediate shareholders in a multi-tier holding structure need not be a Hong Kong tax resident,” PwC noted. 

If the shareholder holding 100% equity interest of the applicant qualifies as a BO and such shareholder and all intermediate shareholders in the multi-tier holding structure are resident of a tax treaty jurisdiction which enjoys the same treaty benefit with respect to dividends received from China as compared to that it is entitled by the HK applicant, the latter is treated as BO of dividends. 

The notice will take effect on April 1, 2018.