Guidance on China's General Anti-Avoidance Rules Released for Public Comments
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PAULINE W.Y. WONG, Ph.D., MBA,
BA, CPA, FCCA, ATIHK, MHKSI is an
Assistant Professor in the Department
of Accountancy, Lingnan University,
Hong Kong. She may be reached at
pwong@LN.edu.hk.
SEPTEMBER-OCTOBER 2014
Guidance on China's
General Anti-Avoidance
Rules Released for
Public Comments
By Pauline W.Y. Wong1
1. Introduction
China's Corporate Income Tax (CIT) Law,2 released on March 1, 2007, introduced
General Anti-Avoidance Rules (GAAR) to identify tax avoidance arrangements
and to make tax adjustments on avoided taxable income, effective from January
1, 2008. On December 6, 2007, State Council approved the Detailed Implemen-
tation Regulations' (DIR) for the implementation of the CIT Law, which also
took effect on January 1, 2008. In January 2009, China's State Administration
of Taxation (SAT) issued the Implementation Measures for Special Tax Adjust-
ments (Trial) (Guoshuifa [2009] No. 2)' (Circular 2) to highlight transactions
or structures on which anti-avoidance investigations should focus on. However,
there were no detailed guidelines for tax bureaus to follow. On July 3, 2014, SAT
released Draft Administrative Measures on GAAR (Draft Measures)' for public
comments. The Draft Measures provide comprehensive procedures on imple-
menting GAAR. Similar to the other implementation measures and circulars,
the Draft Measures will be retroactive to the effective date of the CIT Law and
therefore be effective on January 1, 2008. SAT asked for public comments until
August 1, 2014.
2. Existing China's GAAR
2.1 CIT Law
The current CIT Law was effective from January 1, 2008. It introduces the Tax
Resident Enterprise (TRE) concept and includes GAAR principles for the first time.
It also discusses special tax adjustments specifically in one chapter. Article 2 defines
TRE as an enterprise set up under China law or one established under foreign laws
but with effective management located in China. While TREs are chargeable to CIT
on their worldwide income, non-TREs are subject to tax on income sourced from
@ 2014 P.W.Y. WONG 35](ViewImageLocal?handle=hein.journals/intaxjo40&div=43&collection=&method=preview&ext=.png&size=3)
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Guidance on China's General Anti-Avoidance Rules Released for Public Comments
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