China: Managing IP tax challenges in BEPS environment

China: Managing IP tax challenges in BEPS environment

Multinational enterprises (MNEs) producing or selling their products in China have had to contend with the commercial, legal, and tax challenges of managing how their intellectual property (IP) is used in relation to their Chinese operations. Regulatory approvals for joint ventures operating in China have often required that IP rights or know-how be transferred into or deployed in China. In some situations, MNEs have sought to retain the “legal entitlements” to their IP outside China. Tax management and planning have been built around these fundamental regulatory, commercial, and legal drivers for the deployment and ownership of IP for MNEs operating in China.

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Recent years have seen significant changes in Chinese tax regulations and practice—particularly in the area of transfer pricing. These changes have provided MNEs an opportunity to rethink existing IP tax management and planning arrangements. Furthermore, likely changes in Chinese and global tax practice, set to emerge from the G20/OECD base erosion and profit shifting (BEPS) global tax reform initiative, are likely to stress-test certain existing IP management structures, and prompt reorganizations.

An August 2015 report prepared by the KPMG member firm in China provides an overview of developments in the Chinese taxation of IP and innovative activity, and focuses on opportunities and challenges for MNEs as they adapt to the new environment.  

This KPMG report includes discussions of the following topics:

  • Benefits of Chinese innovation-related tax incentives
  • Limiting cross-border tax “friction”
  • Global distribution of MNE IP-related operations - Tax considerations

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