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The PRC State Tax Administration of Taxation has recently issued Public Notice [2015] No. 7 (Announcement 7) to revamp the current Chinese tax rules on offshore indirect transfer taxation.
Announcement 7 addresses cases where an investor indirectly sells China assets by selling its stake in an offshore intermediate holding vehicle. PRC tax authorities have been empowered to disregard the intermediate holding vehicle if it is considered as a lack of reasonable commercial purpose and the transaction will be re-characterised as a direct sale transaction with PRC capital gain tax liabilities arise.
