An increasing number of cases are being published in which PRC tax authorities are reported to have deemed a non-resident enterprise to have a permanent establishment (PE) due to its services performed in China.
According to a report on the Hainan local tax bureau’s website, the Nanjing state and local tax bureaus, in Jiangsu province, co-operated in such an investigation to collect RMB5.89 million (US$855,000) in earned income tax (EIT) and RMB31 million in individual income tax (IIT).
The local tax bureau started the investigation when it learned that a Chinese company had paid large service fee amounts to an offshore company. As the services were rendered over a long period, the local tax bureau decided to look into whether the offshore company had created a PE in China. The local tax bureau also asked the state tax bureau to review the service contract submitted by the company to the state tax bureau for recordal purposes.
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Business Law Digest is compiled with the assistance of BAKER MCKENZIE. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mailing Danian Zhang at danian.zhang@bakermckenzie.com, or for general enquiries contact Anand Ramaswamy at anand.ramaswamy@bakermckenzie.com
Additional copy regarding new treaties with India was compiled by Nishith Desai Associates (NDA), a research-based international law firm with offices in Mumbai, New Delhi, Bangalore, Singapore, Silicon Valley and Munich.