Announcement of the State Administration of Taxation on Several Issues concerning the Implementation of Tax Agreements

· Document Number：Announcement No. 11 [2018] of the State Administration of Taxation

· Area of Law： Taxation

· Level of Authority： Departmental Regulatory Documents

· Date issued：02-09-2018

· Effective Date：04-01-2018

· Status： Effective

· Issuing Authority： State Administration of Taxation

Announcement of the State Administration of Taxation on Several Issues concerning the Implementation of Tax Agreements
(Announcement No. 11 [2018] of the State Administration of Taxation)
To unify and regulate the implementation of the agreements on the avoidance of double taxation signed between the Chinese government and other parties (hereinafter referred to as “tax agreements”), the clauses on permanent establishments, shipping and air transport, and entertainers and sportsmen in tax agreements, the application of tax agreements to partnership enterprises and other relevant matters are hereby announced as follows:
I. Chinese-foreign cooperative educational institutions without the status of a legal person and the places where educational and teaching activities are conducted among Chinese-foreign cooperative education projects constitute the permanent establishments of the residents of the other contracting states to tax agreements in China.
Where there is any expression that “for more than six months in succession or in accumulation during any 12 months” in any permanent establishment clauses concerning whether labor activities constitute permanent establishments, such expression shall be “for more than 183 days in succession or in accumulation during any 12 months.”
II. Where shipping and air transport clauses are consistent with the contents as prescribed in Article 8 (Shipping and Air Transport) of the Agreement between the Government of the People's Republic of China and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and the Protocol thereof (hereinafter referred to as the “China-Singapore Tax Agreement”), the following principle shall be followed:
(1) An enterprise of a contracting state shall be exempt from tax in the other contracting state imposed on the income derived by it from the other contracting state for engaging in international transport business with ships or aircrafts.
“Income from engaging in international transport business” means income derived by an enterprise from engaging in passenger or cargo transport with ships or aircrafts or from leasing out vessels by means of voyage charter or time charter or leasing out aircrafts by means of wet lease (including all equipment, crew and supplies).
(2) The tax exemption provisions in the aforesaid item (1) also apply to the income from the participation in a pool, a joint business or an international operating agency. As for the tax treatment for international transport business jointly operated by two or more companies, all shareholding enterprises or cooperative enterprises shall respectively pay tax on the profits attributed to them in their respective countries of which they are residents.
(3) “Interest income derived by an enterprise of a contracting state from its deposits incidental to and connected with its operation of international transport business with ships or aircrafts” in paragraph 3 of Article 8 of the China-Singapore Tax Agreement means the interest accrued on the deposits of transport income in the other contracting state derived by any shipping or air enterprise engaging in international transport business in either of the contracting states from the other contracting state. The provisions of Article 11 (Interest) of the China-Singapore Tax Agreement shall not apply to such interest, which shall be deemed as income incidental to international transport business, and be exempt from tax in the country from which the income is derived.
(4) The income derived by an enterprise from leasing out vessels by means of bareboat charter or leasing out aircrafts by means of dry lease and from using, saving, or leasing out containers for transporting goods or commodities (including relevant equipment of trailers and shipping containers) and other leasing business does not fall within the scope of international transport income, but the income from the aforesaid leasing business incidental to international transport business shall be treated as international transport income according to paragraph 4 of Article 8 of the China-Singapore Tax Agreement.
“Incidental” means being related to and serving international transport business, which is of supportive and incidental nature. An enterprise shall meet the following three conditions to enable the income it derives from engaging in the aforesaid leasing business incidental to international transport business to be entitled to the treatment under the shipping and air clauses of the agreement:
(a) The industrial and commercial registration of the enterprise and relevant certification materials can prove that the principal business of the enterprise is international transport.
(b) The incidental business engaged in by the enterprise is an activity that makes a small contribution to the principal business but is closely connected with the principal business and cannot act as a separate business or source of income when it operates international transport business.
(c) In a fiscal year, the proportion of income derived by the enterprise from engaging in the incidental business to the total income from its international transport business does not exceed 10% in principle.
(5) The following income closely related to international transport business shall act as part of international transport income:
(a) Income from the sale of passenger tickets on a commission basis for other international transport enterprises.
(b) Income from the transport of passengers from downtown to airports.
(c) Income from the transport from a warehouse to an airport or dock or from an airport or a dock to a purchaser, and from direct delivery of goods to the purchaser through trucks.
(d) Income from the hotels established by the enterprise only to provide interim accommodation for the passengers it carries.
(6) The income derived by an enterprise which does not specialize in international transport business from the operation of international transport business with ships or aircrafts it owns falls within the scope of income from international transport.
III. In the absence of provisions of paragraph 4 of Article 8 of the China-Singapore Tax Agreement in shipping and air transport clauses, the treatment of the income derived by a resident of the other contracting state to the tax agreement from engaging in the leasing business as mentioned in item (4) of Article 2 of this Announcement shall be governed by reference to item (4) of Article 2 of this Announcement.
IV. Where any clauses on entertainers and sportsmen are consistent with the provisions of Article 17 (Artists and Sportsmen) of the China-Singapore Tax Agreement, the following principles shall be followed:
(1) The activities of entertainers include the activities engaged in by entertainers in various of forms of arts, such as stage, film and television, and music; other personal activities conducted in the identity of entertainers (such as movie promotion activities conducted by entertainers, and advertising shooting, corporate annual meetings, corporate ribbon cutting and other activities participated in by entertainers or sportsmen); and the activities which are of entertainment nature and involve politics, society, religion or philanthropy.
The activities of entertainers exclude delivery of speeches at meetings, and the activities conducted in the identity of the accompanying administrative and logistical personnel (such as photographers, producers, directors, choreographers, technicians and delivery personnel of road show groups).
The speeches of performance nature in commercial activities do not fall within the scope of speeches delivered at meetings.
(2) The activities of sportsmen include participations in race, high jump, swimming and other traditional sports items; participations in golf, horse racing, football, cricket, tennis, automobile racing, and other sports items; and participations in billiards, chess, bridge games, e-sports, and other events of entertainment nature.
(3) The income derived from conducting personal activities in the identity of entertainers or sportsmen includes the income from conducting performance activities (such as appearance fees) and the income (such as advertising fees) that is directly or indirectly related to the performance activities conducted.
The income distributed to entertainers or sportsmen from the income from the sale of audio-visual recordings of performance activities, and the income involving copyrights related to entertainers or sportsmen shall be treated in accordance with the provisions of Article 12 (Royalties) of the China-Singapore Tax Agreement.
(4) Where any entertainer or sportsman obtains income directly or indirectly, in accordance with the provisions of paragraph 1 of Article 17 of the China-Singapore Tax Agreement, a contracting state where the performance activity takes place may, in accordance with its domestic laws, impose tax on the income of the entertainer or sportsman, regardless of the provisions of Article 14 (Independent Personal Services) and Article 15 (Non-Independent Personal Services) of the China-Singapore Tax Agreement.
(5) Where the income from any performance activity is wholly or partially collected by other parties (including individuals, companies and other groups), if the domestic laws of a contracting state where the performance activity takes place provides that the income collected by any other party shall be deemed as the income of the entertainer or sportsman, based on paragraph 1 of Article 17 of the China-Singapore Tax Agreement, a contracting state where the performance activity takes place may impose tax on the income derived by the entertainer or sportsman from the performance activity according to its domestic laws, regardless of the provisions of Article 14 (Independent Personal Services) and Article 15 (Non-Independent Personal Services) of the China-Singapore Tax Agreement; and if a contracting state where the performance activity takes place cannot deem the income collected by any other party as the income of the entertainer or sportsman based on its domestic laws, based on paragraph 2 of Article 17 of the China-Singapore Tax Agreement, the state may impose tax on the income from the performance activity collected by any other party according to its domestic laws, regardless of the provisions of Article 7 (Business Profits), Article 14 (Independent Personal Services) and Article 15 (Non-Independent Personal Services) of the China-Singapore Tax Agreement.
V. The application of tax agreements to partnership enterprises and other similar entities (hereinafter referred to as “partnership enterprises”) shall be governed by the following principles:
(1) Where the partner of a partnership enterprise founded established within the territory of China under Chinese laws is a resident of the other contracting state to a tax agreement, the portion of the taxable income of the partner in China that is deemed by the contracting state as the income of its resident may be entitled to the treatment under the agreement in China.
(2) A partnership enterprise formed under the law of a foreign country (region), whose actual management institution is not inside China but which has offices or establishments inside China, or which does not have any offices or establishments inside China but has incomes sourced in China is a non-resident taxpayer of enterprise income tax in China. The taxable income of the partner in China may not be entitled to the treatment under the agreement unless when it is a resident of the other contracting state, except as otherwise provided for by the tax agreement. The Certificate of Chinese Fiscal Resident issued by the competent tax authority in the other contracting state, which is submitted by the partnership enterprise in accordance with Article 7 of the Measures for the Administration of Non-Resident Taxpayers' Enjoyment of the Treatment under Tax Agreements (Issued by Announcement No. 60 [2015], SAT) shall be able to prove that it is obliged to pay taxes in the other contracting state due to its domicile, residence, place of formation, place of management institution or any other similar standard based on the domestic laws of the other contracting state.
“Except as otherwise provided for by the tax agreement” means that, according to the provisions of the tax agreement, when the income derived by the partnership enterprise shall be deemed as the income derived by the partner based on the domestic laws of the other contracting state, the corresponding portion distributed to the resident partner of the other contracting party from the income derived by the partnership enterprise shall be entitled to the treatment under the tax agreement.
VI. This Announcement shall apply to issues concerning the implementation of the Arrangements on the Avoidance of Double Taxation signed between the Mainland and the Hong Kong Special Administrative Region and between the Mainland and the Macao Special Administrative Region.
VII. This Announcement shall come into force on April 1, 2018, upon which Articles 8 and 17 of the Interpretation to the Clauses of the Agreement between the Government of the People's Republic of China and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and the Protocol thereof (No. 75 [2010], SAT) shall be repealed.
State Administration of Taxation
February 9, 2018