In order to further regulate and enhance the administration of enterprise income tax on indirect transfer of properties including equities in Chinese resident enterprises by non-resident enterprises, in accordance with Enterprise Income Tax Law of the People’s Republic of China (hereinafter referred to as Enterprise Income Tax Law) and its Implementation Regulations, Tax Collection and Administration Law of the People’s Republic of China (hereinafter referred to as Tax Collection and Administration Law) and its Implementation Rules, relevant issues are hereby announced as follows:

1. Where a non-resident enterprise indirectly transfers properties including equities in Chinese resident enterprises by implementing arrangements without reasonable commercial purposes and results in the avoidance of enterprise income tax liability, such indirect transfer shall be re-characterized as direct transfer of properties including equities in Chinese resident enterprises in accordance with Article 47 of Enterprise Income Tax Law.

For purposes of this Announcement, “Properties including equities in Chinese resident enterprises” refer to properties of an establishment or a place in China owned directly by the non-resident enterprise and the gain derived by direct transfer of these properties shall be subject to enterprise income tax in accordance with the provisions of tax laws in China, immovable properties in China, equity investments in a Chinese resident enterprise, etc. (hereinafter referred to as taxable properties in China).

“Indirect transfer of taxable properties in China” refers to the circumstances under which the non-resident enterprise, through the transfer of the equity and other similar rights and interests (hereinafter referred to as equity) of an overseas enterprise (not including Chinese resident enterprise registered overseas, hereinafter referred to as overseas enterprise) which directly or indirectly owns taxable properties in China, generates the same or similar substantive outcome as compared with the direct transfer of taxable properties in China, including changes in the shareholder of an overseas enterprise resulting from restructuring of the non-resident enterprise. The non-resident enterprise who indirectly transfers taxable properties in China is referred to as the “equity transferor”.

2. Where Article 1 of this Announcement is applicable to the equity transferor, the portion of income which is attributable to taxable properties in China (hereinafter referred to as the income from indirect transfer of taxable properties in China) derived by the equity transferor from the equity transfer of the overseas enterprise shall follow the tax treatments in the order as follows:

a) The portion which is attributable to properties of an establishment or a place in China of the overseas enterprise and its subsidiaries which directly or indirectly hold the taxable properties in China (hereinafter referred to as the income from indirect transfer of establishment or place properties) shall be considered as income effectively connected with such an establishment or a place and subject to enterprise income tax in accordance with Paragraph 2 of Article 3 of Enterprise Income Tax Law.

b) Under the circumstances other than that stipulated in Article 2 a) of this Announcement, the portion which is attributable to immovable properties in China (hereinafter referred to as the income from indirect transfer of immovable properties) shall be considered as income from the transfer of immovable properties sourced from China and subject to enterprise income tax in accordance with Paragraph 3 of Article 3 of Enterprise Income Tax Law.

c) Under the circumstances other than those stipulated in Article 2 a) or Article 2 b) of this Announcement, the portion which is attributable to equity investments in Chinese resident enterprises (hereinafter referred to as indirect equity transfer income) shall be considered as income from the transfer of equity investments sourced from China and subject to enterprise income tax in accordance with Paragraph 3 of Article 3 of Enterprise Income Tax Law.

3. When assessing the “reasonable commercial purposes”, a holistic approach shall be used to consider all the arrangements relevant to the indirect transfer of taxable properties in China based on the actual facts and circumstances. The following relevant factors shall be analyzed comprehensively:

a) Whether the main value of the equity of the overseas enterprise is derived directly or indirectly from taxable properties in China;

b) Whether the majority of the assets of the overseas enterprise are directly or indirectly comprised of investments in China, or whether the majority of its income is directly or indirectly derived from China;

c) Whether the actual functions performed and risks undertaken by the overseas enterprise and its subsidiaries which directly or indirectly hold the taxable properties in China can substantiate the economic substance of the corporate structure;

d) The existence duration of the shareholders, business model of the overseas enterprise and related organizational structure;

e) The overseas income tax payment for the indirect transfer of taxable properties in China;

f) Whether the indirect investment or the indirect transfer of the taxable properties in China by the equity transferor can be substituted by a direct investment or a direct transfer of the taxable properties in China;

g) Applicable tax treaties or tax arrangements for the indirect transfer of taxable properties in China;

h) Other related factors.

4. Except as provided in Article 5 or Article 6 of this Announcement, if the overall arrangement related to the indirect transfer of taxable properties in China meets all of the following conditions, it shall be directly deemed as having no reasonable commercial purposes without analysis or judgment in accordance with Article 3 of this Announcement:

a) 75% or more of the value of the overseas enterprise is directly or indirectly derived from taxable properties in China;

b) At any time within one year before the indirect transfer of taxable properties in China, 90% or more of the total assets of the overseas enterprise (not including cash) are directly or indirectly comprised of investments in China, or 90% or more of overseas enterprise’s income in the year before the indirect transfer of taxable properties in China is directly or indirectly derived from China;

c) The overseas enterprise and its subsidiaries which directly or indirectly hold the taxable properties in China are registered in that country (region) to satisfy the organizational format required by law, but actually perform limited functions and undertake limited risks which are not enough to substantiate their economic substance;

d) The overseas income tax payable for the indirect transfer of taxable properties in China is lower than the possible tax burden in China on the direct transfer of such taxable properties in China.

5. Article 1 of this Announcement shall not apply where the overall arrangement related to the indirect transfer of taxable properties in China meets any of the following conditions:

a) The non-resident enterprise derives income from indirect transfer of taxable properties in China from the buying and selling of shares of the same overseas listed enterprise on the open market;

b) If the non-resident enterprise directly holds and transfers the taxable properties in China, the income from the transfer of such properties may be exempted from enterprise income tax in accordance with the applicable tax treaty or tax arrangement.

6. Where the indirect transfer of taxable properties in China meets all of the following conditions, it shall be deemed as having reasonable commercial purposes:

a) The shareholding relationship of the transaction parties shall satisfy any of the following conditions:

(i) The equity transferor directly or indirectly owns 80% or more of the equity in the equity transferee;

(ii) The equity transferee directly or indirectly owns 80% or more of the equity in the equity transferor;

(iii) 80% or more of the equity in the equity transferor and equity transferee is directly or indirectly held by the same party.

Where more than 50% (not including 50%) of the value of the overseas enterprise is directly or indirectly derived from immovable properties situated in China, the shareholding relationship referred to in Article 6 a) (i), (ii), and (iii) shall be 100%.

In the case of indirect shareholding as mentioned above, the equity interest shall be calculated by multiplying the shareholding percentage at each level.

b) Compared to the same or similar indirect transfer without the happening of the current indirect transfer, the potential indirect transfer subsequent to the current indirect transfer will not reduce the income tax burden in China.

c) The deal consideration of the transfer is totally paid in the form of the equity (not including the equity of listed enterprises) of the equity transferee or other enterprises having a shareholding relationship.

7. Where the income from indirect transfer of establishment or place properties shall be subject to enterprise income tax in accordance with this Announcement, the establishment or place shall include the income in its annual income in the tax year when the tax obligation for the indirect transfer arises and file enterprise income tax in accordance with relevant regulations.

8. For income from indirect transfer of immovable properties or indirect transfer of equity which shall be subject to enterprise income tax in accordance with this Announcement, the entity or individual that has the direct obligation to make the relevant payment to the equity transferor in accordance with relevant laws or contracts shall be the withholding agent.

If the withholding agent does not withhold the tax or does not withhold the tax in full, the equity transferor shall report the transaction to the tax authority in charge and pay the tax within 7 days after the tax obligation arises. The equity transferor shall also provide relevant documents in connection with the calculation of equity transfer gains and tax payable for the transfer. The tax authority in charge shall report the case upwards level by level to the State Taxation Administration for record within 30 days after the tax is turned over to the State treasury.

If the withholding agent does not withhold the tax and the equity transferor does not pay the enterprise income tax due, the withholding agent shall be held accountable by the tax authority in charge for failing to complete its withholding obligation in accordance with Tax Collection and Administration Law and its Implementation Rules. If the withholding agent has submitted the documents required by Article 9 of this Announcement within 30 days of signing the equity transfer contract or agreement, the legal obligation may be reduced or exempted.

9. Both parties involved in the indirect transfer of taxable properties in China and the Chinese resident enterprise being indirectly transferred may report the transaction to the tax authority in charge and provide the following documents:

a) Equity transfer contracts or agreements (a Chinese translation needs to be prepared if the documents submitted are in foreign languages, the same below);

b) Shareholding structure charts before and after the equity transfer;

c) Financial and accounting statements of the overseas enterprise and its subsidiary which directly or indirectly holds the taxable properties in China for the 2 years prior to the equity transfer;

d) Explanation of why Article 1 of this Announcement does not apply to the indirect transfer of taxable properties in China.

10. Both parties involved in the indirect transfer of taxable properties in China, and the planner, as well as the Chinese resident enterprise being indirectly transferred shall submit the following documents when requested by the tax authority in charge:

a) The documents stipulated in Article 9 of this Announcement (exclusive of the documents that have already been submitted);

b) Information relating to the decision or implementation process of the overall arrangement of the indirect transfer of taxable properties in China;

c) Information regarding the business operations, personnel, finance and properties of the overseas enterprise being transferred and its subsidiary which directly or indirectly holds the taxable properties in China, as well as the internal and external audit information;

d) The asset valuation report and other supporting evidence used to determine the price of the transfer;

e) Overseas income tax payments related to the indirect transfer of taxable properties in China;

f) Evidence and information relating to the application of Article 5 or Article 6 of this Announcement;

g) Other related documents.

11. For cases where the tax authority in charge needs to conduct an investigation into the indirect transfer of taxable properties in China and make adjustments, relevant regulations on general anti-avoidance rules shall apply.

12. If the indirect transfer of the equity in two or more taxable properties in China resulting from the direct transfer of equity of the same overseas enterprise by the equity transferor is subject to enterprise income tax as stipulated by this Announcement, and the indirect transfer concerns two or more tax authorities in charge, the equity transferor shall file enterprise income tax with the aforementioned tax authorities and pay taxes respectively.

The tax authorities in charge shall inform one another of the calculation method of the tax payable and collect enterprise income tax after reaching a consensus. Where a consensus cannot be reached, the tax authorities in charge shall report to their common superior tax authority for coordination.

13. Where the equity transferor does not file and pay the enterprise income tax due for the indirect transfer of taxable properties in China by the required deadline or does not fully settle its enterprise income tax liability, and the withholding agent does not withhold enterprise income tax, the tax authority in charge, in addition to recovering the enterprise income tax payable, shall impose an interest levy on a daily basis on the equity transferor in accordance with Article 121 and 122 of Implementation Rules for Enterprise Income Tax Law.

If the equity transferor provides documents in accordance with Article 9 of this Announcement, or files and pays enterprise income tax in accordance with Articles 7 and 8 of this Announcement within 30 days of signing the contract or agreement for the equity transfer of the overseas enterprise, the interest levy shall be calculated based on the base rate stipulated in Article 122 of Implementation Regulations for Enterprise Income Tax Law. If the equity transferor does not provide the required documents or file enterprise income tax in accordance with this Announcement, the interest levy shall be calculated based on the base rate plus 5 percentage points.

14. This Announcement shall apply to income derived from indirect transfer of taxable properties in China by non-resident enterprise with no establishment or place in China. Where the non-resident enterprise has an establishment or a place in China, this Announcement shall also apply to the income derived from the indirect transfer of taxable properties in China which is not effectively connected with such establishment or place.

Where the income derived from equity transfer of an overseas enterprise by the equity transferor (including the indirect transfer of taxable properties in China) is effectively connected with the establishment or place in China, this Announcement shall not apply and the relevant income shall be directly subject to tax in accordance with Paragraph 2 of Article 3 of Enterprise Income Tax Law.

15. For purposes of this Announcement, the date when the enterprise income tax obligation arises shall refer to the date when the relevant equity transfer contract or agreement takes effect and the relevant procedures for the change in equity ownership of the overseas enterprise are completed.

16. For purposes of this Announcement, the “tax authority in charge” shall refer to the tax authority in charge of the enterprise income tax payable for the income derived from the transfer of relevant taxable properties in China directly owned and transferred by the non-resident enterprise, and shall be determined respectively in accordance with the three circumstances stipulated in Article 2 of this Announcement.

17. For purposes of this Announcement, the term “more than” shall contain the figure itself, except as otherwise specified.

18. Where provisions in this Announcement are inconsistent with provisions in tax treaties, provisions in tax treaties shall prevail.

19. This Announcement shall enter into force from the date of issuance. Unsettled tax matters before the effective date shall be dealt with in accordance with this Announcement. Article 5 and Article 6 of Circular of the State Taxation Administration on Strengthening the Administration of Enterprise Income Tax on Income Derived from Equity Transfers by Non-resident Enterprises (Guoshuihan [2009] No.698), and Article 6 c), 6 d), 6 e) of Announcement of the State Taxation Administration on Several Matters With Respect to the Administration of Enterprise Income Tax for Non-resident Enterprises (State Taxation Administration Announcement No.24 of 2011) shall be repealed simultaneously.

It is hereby announced.

State Taxation Administration

February 3, 2015

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.