In 2009, to promote corporate restructuring, the MoF and the SAT jointly released Circular Caishui [2009] No. 59 to  grant tax deferral treatment to qualified corporate restructuring transactions (recently modified by Circular 109, mentioned above, which expanded its scope).

In 2010, the SAT released Announcement [2010] No. 4, providing procedural guidelines to benefit from the tax deferral treatment.

Under these regulations, to apply the tax deferral treatment, enterprises participating in a corporate restructuring had to file the required documents with the in-charge tax authorities and prove the transaction was eligible. Confirmation could be obtained from the provincial level tax authority if the leading party to the transaction submitted an application.

However, in the current context of reforming the governmental approval system, pre-approval of the tax deferral treatment is no longer suitable to develop the corporate restructuring market. Therefore, the State Council’s Circular 27 abolished this procedure.

Following the release of Circular 27, and to improve administration of the tax deferral treatment, the SAT released Announcement [2015] No.48 (“Announcement 48”) on June 24, 2015, amending the procedural guidelines in Announcement 4.

Announcement 48 replaces the former administrative approach by combining annual declaration management and post-monitoring management.

Announcement 48’s main highlights:

  1. Annual declaration management
    1. If corporate restructuring involves a simple change of legal form, no special requirements need to be fulfilled with the annual declaration.
    2. If corporate restructuring is carried out in any other form, all parties to the transaction must submit to the in-charge tax authorities (i) the newly designed “Reporting Form of Tax Deferral Treatment for Corporate Restructuring” and its schedule and (ii) the supporting documents provided in the list of declaration materials when filing the annual EIT declaration for the year the transaction was completed
    3. Any parties that are to be deregistered due to a merger or split must submit these documents before the tax deregistration procedure is carried out.
    4. As the leading party of a corporate restructuring is the party benefiting from the tax deferral treatment, in addition to the usual declaration documents, other parties should also file a copy of the reporting form submitted by the leading party.
    5. Information must be provided on transfers taking place in the 12 months before or after the corporate restructuring to evaluate whether the transactions should be considered as a whole. The tax deferral treatment can be temporarily applied in the first year the relevant transfers to be carried across two years start, and retroactively adjusted if the transaction finally fails to meet all conditions.
  2. Post-monitoring management
    1. Resident enterprises must accurately record the tax deferral status and provide an explanation in their annual declaration for each of the following years in which the tax deferral treatment is applicable (as a track record).
    2. In the case of subsequent transfers of asset or equity, if the tax deferral treatment is applied, the relevant enterprise must submit a special report on the resulting gain or loss in the annual declaration for the year the transfer occurs.
    3. If the authorities determine that the tax deferral treatment is not applicable, the corresponding tax return may be subject to retroactive adjustment.

Announcement 48 also redefines other concepts such as (i) the parties in each type of reorganization, and which party must be considered dominant; (ii) the reorganization date; and (iii) the reasonable business purposes supporting the reorganization.

Announcement 48 is applicable to the 2015 EIT annual declaration onwards, and to corporate restructuring transactions already signed but not yet completed.

Date of issue: June 24, 2015. Effective date: January 1, 2015.