The China Taxation News reported on 25 August 2017 that the Laizhou State Tax Bureau (LSTB) in Shandong collected RMB8.5 million in additional taxes from a Singapore enterprise on a share transfer, despite the buyer having withheld and paid tax to its in-charge tax bureau.
Earlier this year, a Singapore enterprise transferred its 49% equity interest in a Chinese enterprise located in Laizhou to another Chinese enterprise outside of Laizhou. After the share transfer, the Chinese buyer withheld and paid tax to its in-charge tax bureau.
Although none of the three enterprises reported the share transfer to the LSTB, the bureau identified the share transfer during its daily tax examination on the transferred enterprise. The LSTB learned that the Chinese buyer withheld the tax based on the transfer price, which was calculated in accordance with the transferred enterprise’s net asset value on the pricing date rather than the share transfer date.
As the net asset value on the share transfer date was much higher than on the pricing date, the LSTB decided to reassess the tax payable on the share transfer based on the net asset value on the share transfer date. As a result, the LSTB collected RMB8.5 million in additional taxes from the Singapore seller.
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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 (Shanghai) at: danian.zhang@bakermckenzie.com
