A posting to the official website of OECD observes that, on 7 June 2017, ministers and high-level officials representing 68 countries and jurisdictions, including Wang Jun, Commissioner of the Chinese State Administration of Taxation (SAT), signed the BEPS Action 15 Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (Multilateral Instrument, ‘MLI’). A further 8 countries formally expressed their intention to sign the MLI, with up to 25 further countries expected to sign by the end of 2017. The MLI is intended to swiftly implement BEPS tax treaty updates across much of the existing global network of bilateral double taxation agreements (DTAs) (1100 treaties initially) and reduce opportunities for tax avoidance by multinational enterprises. The MLI will strengthen provisions to resolve treaty disputes, including (for 26 countries) through mandatory binding arbitration.
The MLI was developed through inclusive negotiations involving more than 100 countries and jurisdictions, under a mandate delivered by G20 Finance Ministers and Central Bank Governors at their February 2015 meeting. The first modifications to bilateral DTAs are expected to enter into effect in early 2018.
The first round of updates will update 48 of China's DTAs, which may rise to 54 in the near future. This includes the DTAs with most of China's major trading and investment partners, but not the US, which has not signed the MLI. The most significant updates will be the insertion of treaty anti-abuse principal purposes test (PPT) rules into each of the updated DTAs, alongside a new ‘preamble’ reinforcing anti-treaty abuse rules. There will also be a general replacement of the corporate tax residence tie breaker test in the updated DTAs, and a modernization of the mutual agreement procedure (MAP) and transfer pricing (TP) articles in older treaties. However, the most highly anticipated MLI update, in respect of the new BEPS permanent establishment (PE) rules, will not be made to Chinese DTAs.
A host of other rules adopted by other MLI signatories, in relation to arbitration, transparent entities, and PE triangular abuses, will also not be adopted by China. Enterprises operating cross-border with China should monitor the entry into effect of the new DTA rules and new SAT guidance, and plan accordingly.
* With regard to the details of the MLI and its impact to China as well as summaries on what all the different countries are doing on MLI around the world, you may access the following KPMG publications for more:
In a posting to the OECD website on 29 May 2017 the OECD released a document, approved by the Inclusive Framework on BEPS, which will form the basis of the peer review of the Action 6 minimum standard on preventing the granting of treaty benefits in inappropriate circumstances.
The Action 6 minimum standard is one of the four BEPS minimum standards (i.e. Action 5 IP regimes and exchange of tax rulings, Action 6 treaty abuse, Action 13 TP documentation, including country-by-country reporting (CBCR) , and Action 14 dispute resolution). Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation. All 98 member countries of the Inclusive Framework on BEPS commit to implementing the minimum standards and participating in the peer reviews.
The document includes the Terms of Reference which sets out the criteria for assessing the implementation of the Action 6 minimum standard, and the Methodology which sets out the procedural mechanism by which the review will be conducted. China will be subject to peer review on its treaty abuse rules under this mechanism.
* China is also under Peer review for BEPS Action 14 on dispute resolution and the peer review is to begin in late 2018. The signing of the MLI and associated DTA updates help China meet the minimum standards (and therefore pass the peer reviews) for Actions 6 and 14.
** In February 2017, OECD released documents setting standards and processes for peer review of the adoption of the BEPS minimum standards applicable under BEPS Action 13 on CBCR and BEPS Action 5 on the exchange of information on tax rulings. See the following KPMG updates for more details:
As highlighted in KPMG China Tax Weekly Update (Issue 18, May 2017), the Ministry of Finance (MOF) and SAT on 28 April 2017 jointly issued Notice on pilot tax policies related to venture capital enterprises and individual “business angel” investors (Cai Shui  No. 38, “Circular 38”). This set out a new incentive treatment for venture capital (VC) enterprises and individual ‘business angel’ investors to be initially piloted in eight designated locations, including Beijing-Tianjin-Hebei, Shanghai, Guangdong, Anhui, Sichuan, Wuhan, Xian, Shenyang, as well as Suzhou Industrial Park. This commences from 1 January 2017 for Corporate Income Tax (CIT) purposes, and from 1 July 2017 for Individual Income Tax (IIT) purposes. In brief, where investments are made in science and technology enterprises seeking capital or start-up stage support (‘technology start-ups’), and where the investment is for a period of two years or more, then 70% of the investment amount can be offset against the taxable income of the investor.
To complement this, the SAT issued Announcement  No. 20 (“Announcement No. 20”) on 22 May 2017. This further clarifies the implementation, recordal filing and documentation requirements of this new tax incentive treatment. It clarifies, inter alia, that:
* For detailed implications of this new incentive treatment, please refer to KPMG China Tax Alert (Issue 15, May 2017).
A posting to the website of the Central Government observed that the Chinese government has rolled out four batches of tax and fee reduction measures since the start of 2017. This is estimated to have yielded tax and fee relief of RMB 718 billion. On 7 June 2017, the State Council committed to further cut taxes and fees, including:
These measures will come into effect from 1 July 2017, and are estimated to result in additional savings of RMB 283 billion enterprises by the end of 2017. These would, in total, lower the tax burden for enterprises in 2017 by over RMB 1 trillion (US$147 billion), of which more than 60% arising from fee reductions.
The meeting also approved the construction of more ‘demonstration bases’ for mass entrepreneurship and innovation to promote economic transformation and upgrade. Assisting measures will include simplified and specialized approval procedures for demonstration zones, improved tax reduction and exemption policies, and new equity incentive policies.
* For more information about the fees reduction and internet entrepreneurship and innovation, please read KPMG China Tax Weekly Update (Issue 46, December 2016), (Issue 20, June 2016), (Issue 19, May 2016) and (Issue 9, March 2016).
In recent years, with the explosion in outbound tourism and business travel from China to foreign countries, there has been a huge increase in overseas withdrawals using Chinese bank cards in foreign countries. There is concern that this is becoming a channel for Chinese citizens to extract capital from China.
To tackle this, the State Administration of Foreign Exchange (SAFE) on 26 May 2017 issued Hui Fa  No. 15 (“Circular 15”), requiring Chinese bank card issuers to report their bank card holders’ overseas transaction information starting from 1 September 2017. The headquarters of each bank card issuer enterprise must compile all the details of their bank card holders’ overseas transactions as a detailed listing, and report it to the SAFE on a daily basis, including:
Circular 15 does not cover overseas transactions processed by non-banking payment institutions (e.g. payments using Wechat or Alipay).
* Prior to this, the international business media has increasingly reported that the Chinese forex authorities have been tightening limitations on outbound flows of investment from China, on profit remittances from China by foreign-invested enterprises (FIEs), and on cross-border payments for servicing of cross-border financing. Chinese forex authorities along with other relevant Chinese government authorities have made clarifications on these reports. See KPMG China Tax Weekly Update (Issue 48, December 2016), (Issue 47, December 2016) and (Issue 6, February 2017) for more details.
** On 19 May 2017, the SAT along with other 5 government authorities jointlyissued “Measures on the Due Diligence of Non-resident Financial AccountInformation in Tax Matters”(Announcement  No. 14, “Measures”),effective from 1 July 2017. These measures will support the Chinese taxauthorities gathering information from overseas tax authorities on the foreignbank activity of Chinese residents. With regard to the detailed content andimpact of the Measures, you can read the following KPMG publications:
** For more information about CRS and AEOI, please see the following KPMGPublication:
As highlighted in KPMG China Tax Weekly Update (Issue 16, April 2017), Premier Li Keqiang, at an 19 April 2017 executive meeting of the State Council, outlined several tax reduction measures. One of these is that from 1 January 2017 to 31 December 2019, eligible small enterprises whose taxable income falls under RMB500,000, may pay CIT on 50% of their whole income at a rate of 20% (i.e., effective rate is 10%). The threshold was previously RMB300,000.
Following this, the MOF and SAT on 6 June 2017 jointly issued Cai Shui  No. 43 (“Circular 43") further clarifying the qualifying conditions:
These qualifying conditions are consistent with the existing rules.
You may click here to access the full content of the circular.