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The Tax Roadmap

Collaborating along the Belt and Road

Opportunities and challenges

tax roadmap

The Belt and Road Initiative (BRI or the Initiative) presents a number of opportunities and challenges to consider for local BRI governments, inbound investors and business partners.

The Tax Roadmap

Enterprises participating in the BRI have to plan ahead and properly manage their investment and tax risks to mitigate potential exposures for both enterprises and their employees.

Key tax themes

Implementing effective investment holding and operating structures

Structures will need to address the investment objectives, effective debt funding required and repatriation of profits from projects to shareholders.

Double tax treaty relief

The use of double tax agreements (DTAs) will be important in eliminating double taxation and reducing withholding tax (WHT) on repatriation of profits.

Permanent establishment (PE) and tax residency risks

Mainland and international enterprises participating in BRI opportunities will be liable to overseas taxes with respect to profits generated. There may also be potential risk of overseas BRI entities creating tax residency in China if not properly managed. Enterprises need to carefully manage and establish appropriate operating protocols to ensure they do not create inadvertent overseas PE or tax residency risks in any of the countries in which they are operating or investing.

Capital structuring and transfer pricing (TP)

The mix of equity, debt and shareholder loans for BRI investments will be an important element for investors. The tax treatment of debt and equity can vary between jurisdictions, and TP and thin-capitalisation regulations will impact the effectiveness of shareholder loan structures. These elements need to be carefully considered to maximise tax deduction and minimise tax costs such as interest and dividend WHT.

Tax planning and management

Prior to making an investment in BRI opportunities, enterprises will need to identify, understand and evaluate the operational tax costs to develop and implement an efficient operating model for investment.

The KPMG tax proposition

Comprehensive tax support from Hong Kong

Our Hong Kong tax team comprises a dedicated and experienced Deal Advisory, Mergers and Acquisitions Tax team that has participated in many high-profile cross-border transactions and restructuring deals. KPMG is well-positioned to support our clients that participate in the BRI with current in-depth tax advice throughout the deal cycle. This includes providing tax due diligence and structuring assistance, advising on appropriate financing arrangements, as well as potential tax-efficient exit strategies and tax modelling assistance. In addition, KPMG offers a broad range of tax services to support our clients including, but not limited to, TP, trade and customs, tax dispute resolution and controversy, personal tax planning and global compliance management services.

Global tax network

KPMG has an extensive international network of tax professionals located around the world. We offer our clients in-depth technical and practical knowledge of the local tax rules across all sectors along the BRI. Our broad industry and sector experience ranges from real estate, infrastructure, financial services and private equity to the services sector.

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