How to submit treaty benefit applications in China using new process

China’s State Administration of Taxation (SAT) has released the SAT Announcement No. 60 that prescribes a new process for treaty benefit applications by treaty country residents.

How to submit treaty benefit applications in China using new process

Announcement 60 annuls tax authorities’ pre-approval prerequisite for claiming treaty benefits. Under Announcement 60, if a non-resident receives dividends, interests and/or royalties, for which the non-resident recipient is not required to file a Chinese tax return. In such a case withholding agent has the ability to apply for treaty relief, provided that the non-resident taxpayer substantiates its treaty eligibility by providing the required forms and documents.

In the event that the non-resident taxpayer is needed to file a Chinese tax return, the non-resident taxpayer should provide suchlike substantiation with its Chinese tax return and then file both with a tax bureau. A withholding agent could proceed with the bank payment after submitting the tax return and the required documents, prior to the tax authorities’ confirmation on the treatment.

It is likely for the Chinese tax authorities to request the submission of additional documents and/or deny such a claim upon its examination of the submission package.

SAT’s announcement 60 makes the compliance process simple and helps speed up payments to treaty residents. As Announcement 60 shifts a preapproval to a self-assessment system, though, it may amplify uncertainties of eligibility due to ambiguities of tax legislation, including a statute of limitations, and inadequate appeal/lawsuit procedures held in China.

When it comes to determining treaty benefit eligibility, multinational companies need to take into consideration what documentation will most efficiently support their claims, including transfer pricing considerations and substantiation. In addition to that, taxpayers should consider how to develop strategies and approaches, in order to effectively safeguard any possible tax authorities’ challenges.

Announcement 60 activates for treaty eligibility applications made on or after the 1st of November 2015 but also applies to pending retroactive applications. Nevertheless, cases that have been preapproved before this date are not affected until their date of expiry. For dividend payments, interest, royalty and capital gain, the pre-approval’s validity lasts for 3 years. The expiration dates of other items are not specific and are subject to the local tax authorities’ evaluation.

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