Announcement of the State Taxation Administration on Matters With Respect to Capital Gains in Tax Treaties

StateTaxationAdministrationAnnouncementNo.59of2012

2012-12-31

Announcement of the State Taxation Administration on Matters With Respect to Capital Gains in Tax Treaties
State Taxation Administration Announcement No.59 of 2012
For the purpose of standardizing and unifying the implementation of provisions on capital gains in tax treaties, relevant matters with respect to Agreement between the Government of the People’s Republic of China and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter referred to as the China-Singapore Tax Agreement ) and Announcement of the State Taxation Administration on Issuing the Interpretations on the Provisions of the Agreement between the Government of the People’s Republic of China and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion W ith Respect to Taxes on Income and the Protocols (Guo Shui Fa [2010] No.75) are hereby announced as follows:
All references to “ i mmovable property” in the fourth clause of Article 13 of China-Singapore Tax Agreement , as well as in Interpretations on the Provisions of the Agreement between the Government of the People’s Republic of China and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and the Protocols attached in Guo Shui Fa [2010] No.75 (hereinafter referred to as Interpretations on the Provisions Attached in Guo Shui Fa [2010] No.75 ), shall include all kinds of structures , including buildings either for business or non-business purposes, land use rights, as well as any property attached to the immovable property.
In accordance with Interpretations on the Provisions Attached in Guo Shui Fa [2010] No.75 , the reference to “more than 50 percent of the value of a company’s shares is directly or indirectly composed of immovable propert ies located in China” means that, at any time within a certain period (the certain period is currently not stipulated in the agreement, and it may be temporarily treated as three years) prior to the transfer of shares, the value of immovable propert ies located in China that are directly or indirectly held by the company whose shares are transferred takes up more than 50 percent of the total value of the company’s property. The reference to “three years prior to the transfer of shares” in the preceding sentence means consecutive 36 calendar months prior to the transfer of shares (excluding the month in which the transfer occurs).
Property and immovable property of a company, mentioned in the fourth clause of Article 13 of China-Singapore Tax Agreement , as well as in Interpretations on the Provisions Attached in Guo Shui Fa [2010] No.75 , shall be confi rmed and valued in accordance with the provisions of the Chinese accounting system valid at the time concerning assets’ treatment ( regardless of liabilities), but the amount of value of land or land use rights contained in the relevant immovable property may not be lower than the amount calculated based on the comparable market price of adjacent or similar types of area at the time.
If the taxpayer cannot make reliable calculations in accordance with the provisions above, the relevant assets shall be confi rmed and valued by tax authorities in accordance with the provisions of the preceding paragraph by a reasonable method .
The fourth paragraph of the fifth clause of Article 13 in Interpretations on the Provisions Attached in Guo Shui Fa [2010] No.75 , shall be replaced by the following provisions:
“In the following situations, a Singapore resident shall be deemed as directly or indirectly participating in the capital of a Chinese resident company:
(1) The Singapore resident participates directly in the capital of the Chinese resident company. If the Singapore resident participates in the capital of the Chinese resident company through other nominal participants (including individuals, companies, and other entities), and the Singapore resident is entitled to exclusive capital participation interests from the capital participated by the nominal participants and bears the actual capital participation risks, the capital participated by the nominal participants in the Chinese resident company may be deemed to be the Singapore resident’s direct participation in the capital of the Chinese resident company;
(2) The Singapore resident participates indirectly in the capital of the Chinese resident company through single-layer or multi-layer companies or other entities (including single or multiple participation chains) with a direct capital relationship featuring 10 percent or more (including 10 percent ). The indirect capital participation shall be calculated as the product of multiplying the ratios of capital of companies or other entities in each participation chain.
(3) Other members in an associated group having significant interest ties with the Singapore resident participate directly , or participate indirectly through single- layer or multi- layer compan ies or other entit ies (including single or multiple chains of participation) with a direct capital relationship featuring 10 percent or more (including 10 percent ), in the capital of the Chinese resident company. The indirect capital participation shall be calculated as the product of multiplying the ratios of capital of companies or other entities in each participation chain. Nonetheless, when calculating the capital stake of the associated group s participating directly or indirectly in the capital of the Chinese resident company on a consolidated basis, the capital stake of each participation chain that meets the above requirements may not be calculated twice. The aforementioned members in an associated group that have significant interest ties with the Singapore resident, shall include:
(a) w h ere the Singapore resident is an individual, the individuals (including the spouse, parents and lineal ancestors, and children and lineal descendants ) who have the same capital participation interests with the Singapore resident individual .
(b) where the Singapore resident is a company or other entity , the individual s, companies and other entities who directly or indirectly own 100 percent of the capital of the Singapore resident ( for individuals, joint ownership with the spouse, parents and lineal ancestors, and children and lineal descendants are included ).
This Announcement shall enter into force from the date of its publication, and the fourth paragraph of the fifth clause of Article 13 in Interpretations on the Provisions Attached in Guo Shui Fa [2010] No.75 shall be re peal ed simultaneously.
State Taxation Administration
December 31, 2012
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.