To implement the treaties between the government of the People’s Republic of China and the governments of other jurisdictions for the avoidance of double taxation (hereinafter referred to as “tax treaties”), issues with respect to the determination of the beneficial owner status for the purpose of claiming benefits on dividends, interest and royalties stipulated by the tax treaties are hereby announced as follows:

1. The term “beneficial owner” refers to a person who has the ownership of and control over the income, or the rights or property that generate such income.

2. In determining the beneficial owner status of a tax resident of the other Contracting Party who claims treaty benefits (hereinafter referred to as “applicant”), a comprehensive analysis shall be conducted in accordance with the provisions of this Article based on the facts and circumstances of each case. In general, the following factors are adverse to the recognition of an applicant as a beneficial owner, if:

a) the applicant has obligations to pay at least 50 percent of the income to a resident of a third country (region) within 12 months after the income is received. “Obligations to pay” refers to situations where the applicant has a contractual obligation to pay and a de facto payment is made by the applicant in the absence of a contractual obligation;

b) the business activities that the applicant carries on are not substantial. Substantial business activities include substantial manufacturing, trading and managerial activities, etc. Whether the business activities conducted by the applicant are substantial shall be considered based on the functions performed and risks assumed by the applicant;

The substantial activity of investment holding management shall be deemed as a substantial business activity. Where an applicant carries on both unsubstantial activities of investment holding management and other business activities at the same time, the applicant’s overall business activity shall not be deemed as substantial business activity if its other business activities are not significant enough;

c) the income is not subject to tax or exempt from tax in the other Contracting State (Region), or is subject to tax but at a very low effective tax rate;

d) in addition to the loan contract in respect of which the interest is generated and paid, there exist other loan or deposit contracts between the creditor and a third person, which are similar in terms of amounts, interest rates and the time of conclusion; or

e) in addition to the transfer contract of the right to use copyright, patent, technology, etc., on which the royalties are generated and paid, there exist other transfer contracts of the right to use or ownership of copyright, patent, technology, etc., between the applicant and a third person.

3. Where an applicant deriving dividends from China does not satisfy the requirements for beneficial owner, while the person directly or indirectly holding 100 percent of the shares of the applicant does, the applicant shall be deemed as a beneficial owner, if:

a) the person who satisfies the requirements for beneficial owner is a tax resident of the state (region) of the applicant; or

b) even though the person who satisfies the requirements for beneficial owner is not a tax resident of the same state (region) as the applicant, that person and the intermediary shareholders of the applicant, if there is any, are all eligible persons.

“Satisfying the requirements for beneficial owner” refers to situations where, through a comprehensive analysis according to Article 2 of this Announcement, a person can be recognized as a beneficial owner.

“An eligible person” refers to a person who, while deriving dividends from China, can enjoy the same or more preferential benefits according to the tax treaties between China and the state (region) of residence of that person, as compared with those the applicant could enjoy.

4. An applicant deriving dividends from China can be recognized forthwith as a beneficial owner without being subject to the comprehensive analysis according to Article 2 of this Announcement, if the applicant is:

a) the government of the other Contracting State (Region);

b) a company which is a resident of and listed in the other Contracting State (Region);

c) an individual who is a resident of the other Contracting State (Region); or

d) wholly owned, directly or indirectly, by one or more persons prescribed in a)–c), and the intermediary shareholders, if there is any, are all residents of China or the other Contracting State (Region).

5. The shareholding percentage prescribed in Article 3 and 4 of this Announcement shall be satisfied at any time during the 12 months period preceding the dividends are derived.

6. The person who acts in the capacity of an agent or a nominee (hereinafter referred to as “agent”) is not a beneficial owner. As to an agent receiving payments on behalf of the applicant, whether the agent is a resident of the other Contracting State (Region) or not shall not affect the determination of the applicant’s beneficial owner status.

“Receiving payments on behalf of the applicant” in this Article shall not include situations where shareholders derive dividends based on shareholding, creditors derive interests based on debt-claims and grantors derive royalties based on licensing arrangements.

7. In determining the beneficial owner status according to Article 2 of this Announcement, a comprehensive analysis based on different types of income may be conducted through reviewing documents such as articles of incorporation, financial statements, records of capital flow, minutes and resolutions of board of directors, loan contracts, royalty contracts or transfer contracts, patent registration certificates and copyright certificates, etc., and the facts such as the allocation of human and material resources, relevant expenditures, functions performed and risks assumed; in determining whether it falls into the situation of an agent “receiving payments on behalf of the applicant” mentioned in Article 6 of this Announcement, an analysis shall be conducted through reviewing documents such as agency contracts or contracts designating recipients.

8. Applicants who are required to prove their beneficial owner status shall submit the relevant documentation according to Article 7 of Announcement of the State Taxation Administration on Issuing the Administrative Measures for Non-resident Taxpayers Claiming Tax Treaty Benefits (State Taxation Administration Announcement No. 60 of 2015). In addition to their own certificates of tax residency, applicants who are deemed as beneficial owners according to Article 3 of this Announcement shall provide the certificates of tax residency of the persons who satisfy the requirements for beneficial owner and those of the eligible persons, which are issued by the competent tax authorities of their respective states (regions) of residence; applicants who are recognized as beneficial owners according to Article 4 d) of this Announcement shall provide, in addition to their own certificates of tax residency, the certificates of tax residency of the persons directly or indirectly holding 100 percent of the applicants’ shares and those of the intermediary shareholders, which are issued by the competent tax authorities of their respective states (regions) of residence; the certificates of tax residency provided shall be able to prove the residence status for the year during which the payment is received or its previous year.

9. During the follow-up administration performed by tax authorities in charge, where applicants voluntarily pay the taxes owed for not satisfying the beneficial owner status, the cases shall be reported by the tax authorities in charge level by level to the provincial tax authorities to keep records; where the tax authorities in charge are of the view that the applicants’ beneficial owner status shall be denied, the cases shall be reported to the provincial tax authorities for approval.

10. Even though an applicant can be recognized as beneficial owner, if the tax authority in charge finds it is necessary for the Principal Purpose Test stipulated in tax treaties or the general anti-avoidance rule in domestic tax laws to apply, then relevant provisions regarding general anti-avoidance shall apply.

11. In respect of the provisions of dividends, interest and royalties under Arrangement Between the Mainland and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and Arrangement Between the Mainland and the Macao Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, determination of the beneficial owner status shall follow this Announcement.

Hong Kong tax residents providing the certificates of tax residency shall follow the provisions of Announcement of the State Taxation Administration With Respect to the Use of Hong Kong Certificates of Tax Residency in the Mainland (State Taxation Administration Announcement No.35 of 2016).

This Announcement shall apply to matters that occur on or after April 1, 2018, where there is a tax obligation or a withholding obligation that requires the enjoyment of tax treaty benefits. Meanwhile, Circular of the State Taxation Administration With Respect to the Interpretation and Recognition of “Beneficial Owner” in Tax Treaties (Guo Shui Han [2009] No. 601) and Announcement of the State Taxation Administration With Respect to the Determination of “Beneficial Owner” in Tax Treaties (State Taxation Administration Announcement No.30 of 2012) are repealed simultaneously.

State Taxation Administration

February 3, 2018

All information in this document is authentic in Chinese. English is provided for reference only. In case of any discrepancy, the Chinese version shall prevail.