On April 12, 2013, the State Administration of Taxation
("SAT") released Shuizonghan  No.
165 ("Circular 165") to further clarify
the beneficiary ownership rules with respect to dividends received
by Hong Kong holding companies pursuant to the Mainland China-Hong
Kong double taxation agreement. Previously, the SAT issued
Guoshuihan  No. 601 ("Circular
601") to define the term "beneficiary
owner" with respect to the tax treaty treatment of dividends,
interests, and royalties.Subsequently, the SAT issued Notice 
No. 30 ("Notice 30") to explain the
application of the beneficiary ownership rules.
Circular 601 expressly lists seven factors, which generally lead
to unfavorable results, in determining beneficiary owners in the
process of reviewing such applications by foreign holding
companies. Circular 165 seeks to soften these unfavorable factors
in regard to dividends received by Hong Kong holding companies.
Below is a chart as to the respective positions of Circulars 601
and 165 in the context of dividends.
Notice 30 has provided safe harbor to qualified publicly traded
companies in the beneficial ownership determination. Circular 165
stresses that circumstances out of safe harbor will not
automatically lead to an unfavorable determination on the
beneficial ownership status. Instead, all factors are still to be
examined. To the extent that one applicant has multiple investment
activities in various locations, Circular 165 calls for a uniform
beneficial ownership determination across the locations.
Circular 165 only applies to Hong Kong holding companies
receiving dividends from subsidiaries in China. Apparently, the SAT
is retreating a bit on its ultra-aggressive position regarding the
beneficial ownership determination, at least in the context of
dividends. The question now is whether the logic of Circular 165
will expand to other jurisdictions or sources of incomes.
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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