A long-disputed issue is whether a secondment arrangement
(assignment) under which a non-Chinese-tax-resident enterprise
(assigner) seconds an individual (assignee) to work at a Chinese
enterprise (recipient) should be regarded as the assigner's
provision of services in the People's Republic of China (PRC)
or as the assignee's employment with the recipient. If the
assigner is considered to have rendered services in the PRC via the
secondee, the assigner may be considered to have created a Chinese
taxable presence and thus be subject to Chinese corporate income
tax. In 2010, the Chinese State Administration of Taxation (SAT)
provided guidance in Guo Shui Fa  No. 75 (Circular 75)
regarding how a secondment arrangement may expose a
non-Chinese-tax-resident enterprise to Chinese corporate income
tax. However, Circular 75 is limited to a situation where there is
a tax treaty between China and the assigner's tax jurisdiction
for an assignment between the parent company and its subsidiary. As
a result, the treatment for other arrangements was uncertain. The
SAT recently issued Announcement of the SAT  No. 19
(Announcement 19), providing clarification for other
arrangements.1 The following is a summary of the salient
points in Announcement 19.
Effective June 1, 2013, Announcement 19 clarifies the situations
in which a secondment arrangement may expose a foreign company to a
challenge regarding Chinese taxable presence. Announcement 19 says
that if the assigner bears part or all of the responsibilities and
risks related to the assignee's work, as well as regularly
assesses the work performance of the assignee, the secondment
arrangement should be viewed as the Chinese taxable presence of the
assigner for providing the services in the PRC. In arriving at any
decision, all of the following five factors should be considered.
The following table compares factors in Announcement 19 with those
in Circular 75 for determining whether a secondment arrangement
would create a Chinese taxable presence to a
the following five factors should be considered, in conjunction
with the information above, in determining if a PRC taxable
presence has been created. The five factors are:
the recipient in China makes payments in the nature of the
management fee or service fee to the assigner;
the recipient's payment to the assigner exceeds the
assignee's wages, salaries, social security contributions and
other expenses borne by the assigner;
the assigner does not pass along all the related payments
received from the recipient to the assignee and retains some
portion of the payments;
PRC individual income tax is not paid on the total amount of
the assignee's wages and salaries borne by the assigner;
the assigner decides the number, qualifications, remuneration
and working locations of the assignee in China.
taxable presence may be created for the parent if one of the four
the parent company is authorized to instruct the individual
regarding work and bears relevant risks and responsibilities;
the parent company pays the individual's salary;
the parent company derives profits from the Chinese subsidiary
due to the dispatch; or
the parent company decides the number and qualifications of
individuals assigned to the subsidiary.
We suggest that foreign companies with existing secondment
arrangements in the PRC immediately review those arrangements,
determine the implications and take appropriate action. Foreign
companies planning to enter a secondment arrangement should note
this development for planning.
 Announcement 19 states that if the assignees are
seconded to the PRC for the purposes of carrying out stewardship
functions, protecting shareholders' interest including
investment suggestions, attending board meetings and activities,
such arrangement should not constitute a Chinese taxable presence
to the non-Chinese-tax-resident enterprise.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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