State Administration of Taxation Announcement on Reporting Overseas Investments  and Income by Resident Enterprises (“the Announcement”) (国家税务总局关于居民企 业报告境外投资和所得信息有关问题的公告)

SAT released Announcement [2014] No. 38 on June 30, which became effective September 1, 2014,  obliging Chinese enterprise income tax (“EIT”) payers  to  report to the tax authority  direct or indirect  investment  of at least 10% in  foreign enterprises’ equity share, or any variation of the holding percentage  above or below the 10% threshold. The report  must be filed with the  prepayment EIT declaration for the period in which the transaction occurred.

There are additional reporting obligations  when the rule for controlled foreign  companies (article 45 of the EIT Act) applies, even under the exception provided in article 84 of the Implementing Measures for Special Tax Payment Adjustments  (for Trial Implementation) (circular Guo Shui Fa [2009] No. 2). The taxpayer  must submit the report when filing the annual EIT return, along with the foreign  enterprise’s financial statements adapted to the Chinese principles.

The deadlines may be extended in special circumstances.

This Announcement aims to strengthen the supervision of outbound investments  and tax liabilities in China that may  result from them, and it  is expected to  affect the implementation of the Chinese controlled foreign company rules,  which currently are barely applied in practice.

Date of issue: June 30, 2014. Date of effectiveness: September 1, 2014.