Interpretation on the Promulgated Administrative Measures for Tax Convention Treatment for Non-resident Taxpayers

With a view to promote the reform of administrative examination and approval for tax affairs and optimize the administration of tax convention treatment for non-resident taxpayers, the State Administration of Taxation (SAT) recently promulgated the Administrative Measures for Tax Convention Treatment for Non-resident Taxpayers, hereinafter referred to as, "Circular No.60". How does this impact on non-resident tax payers?

The main influence is cancellation of the administrative examination and approval of tax convention treatment for Non-resident Taxpayer, extension of application scope, simplification of documents submitted for application.

Below are several points of our interpretation:

  1. The administrative examination and approval was cancelled.
    Circular No.60 cancels the administrative examination and approval of Non-resident Taxpayer enjoying tax convention treatment of it’s dividend, interest, royalty and property income. Non-resident Taxpayer shall judge by itself/himself whether itself/himself could enjoy the convention treatment, instead of getting examined and approved by tax bureau.

  2. Application scope was extended. Circular No.60 extends the scope to tax convention of International transportation clause and International transportation agreement.

  3. Simplification of documents submitted for application. When Non-resident Taxpayer needs to be entitled to the convention treatment, the following statements and material shall be submitted.

    • Information Statement. The Non-resident taxpayer shall fill in the statement of “Non-resident Taxpayer Tax Resident Identity Information Statement” and “Statement on Tax Convention Treatment for Non-resident Taxpayers”.

    • Core evidence documents. Proof of identity of the tax resident issued by the competent tax authority of the counterparty is considered as key evidence document which is required to be submitted to tax bureau, if proof of identity cannot be provided by Non-resident taxpayer then who shall not be considered it/he meets the conditions for enjoying the convention treatment. Furthermore, ownership certificate materials related to relative revenue obtained is required, such as the relevant income-related contracts, agreements. Resolutions of the board of directors or shareholders is required when Non-resident taxpayer takes dividend from China.

    • Other documents submitted voluntarily. The non-resident taxpayer may voluntarily provide other documents to prove that the conditions for the convention treatment are met.

  4. Tax Bureau changes from originally examination and approval beforehand to supervision in the middle and after.

  5. Specify the rights and obligation of Non-resident taxpayer and withholding agent.

    • Non-resident taxpayer bears the obligation of providing evidence to prove itself/himself meet the conditions for the convention treatment and responsible for all documents submitted.

    • Where the non-resident taxpayer provides all the required materials to the withholding agent, and if the conditions for enjoying the convention treatment are met according to the information completed in the relevant statements, the withholding agent shall withhold tax in accordance with the conventions, and forward the relevant statements and materials to the competent tax authority when making the withholding declaration.
      Where the non-resident taxpayer fails to propose the enjoyment of the convention treatment to the withholding agent, or the conditions for enjoying the convention treatment are not met according to the materials provided to the withholding agent and the information completed in the relevant statements, the withholding agent shall withhold tax in accordance with the Provisions of Domestic Tax Laws.

Circular No. 60 is a double-edged sword for Non-resident taxpayer. The advantage is it saves the examination and approval time and facilitate taxpayers to enjoy tax treatment convention in time, but on the other hand, the disadvantage is after transferring from examined and approved by tax bureau in advance to judging by itself/himself, it is high risk if the judgment is not proper.

Tax authority will make specific subsequent administration, and by doing so it may require taxpayer to submit supplementary materials, to pay additional tax and impose administrative punishment, taxpayer should pay high attention to this.