Shanghai office Legal flash May 2017 This issue covers legislation published in April 2017 Index Administrative measures for automobile sales Draft measures on security assessment of overseas transfer of personal information and important data Reform on company registration moves forward Administrative measures on the thousand company groupsregister New EIT risk alert service Further clarification on administrative matters relating to the VAT reform Legal flash Shanghai office 2 Administrative measures for automobile sales (商务部公布 汽车销售管理办法) On April 5, 2017, the OFCOM published Circular Shang Wu Bu Ling  No. 1, on Administrative Measures for Automobile Sales. The administrative measures will take effect on July 1, 2017, replacing the 2005 Implementing Measures for the Administration of Automobile Brand Sales, which have become outdated because of rapid and widespread market development, resulting in monopolies and unfair competition. The administrative measures are aimed at enhancing market development through competition while protecting consumer interests. The highlights: For the first time, the administrative measures define aftersales service providers as business operators engaging in maintenance and repair services after the sales of automobiles. Dealers can sell automobiles without authorization from manufacturers or general distributors by informing consumers in writing of relevant obligations. Dealers must clearly indicate applicable prices and not charge any additional markups or additional fees(e.g., markupsto speed up the delivery process of automobiles). Manufacturers and general distributors must not restrict spare parts sales. Dealers and aftersales service providers selling spare parts must specify whether they are genuine, of equivalent quality, remanufactured or recycled. Manufacturers and general distributors may require a dealer to meet certain business needs, such as maintaining brand image and establishing separate display areas for automobilesto exhibit the brands. However, the new measures prohibit them from (i) requiring dealers to provide additional sales, aftersales services and other functions; (ii) determining the varieties or quantities of whole vehicles or spare parts in stock, or specifying the number of automobiles to be sold, unless both parties have reached an agreement; (iii) restricting the resale of products between dealers and other manufacturers or general distributors; (iv) restricting dealers from providing spare parts and aftersales services for other suppliers automobiles; and (v) restricting the resale of products between dealers. Legal flash Shanghai office 3 Where manufacturers or general distributors entrust the sale of automobiles to dealers, the entrustment period, excluding the time it takes to build the showroom, must be at least three years(five yearsif it is the first entrustment). Entrustment can be finalized by mutual agreement. Manufacturers, general distributors and dealers must file their basic information through online automobile circulation information management system (http://bfqc.scjss.mofcom.gov.cn/) within 90 days after their business license has been issued, and notify any changes within 30 days after they occur. Date of issue: April 5, 2017. Effective date: July 1, 2017 Draft measures on security assessment of overseas transfer of personal information and important data (《个 人信息和重要数据出境安全评估办法》征求意见) Under article 37 of the Cybersecurity Law, key information infrastructure operators must store personal information and important data collected and generated in the course of their operations within Chinese territory (excluding Taiwan and the special administrative regions of Hong Kong and Macao). Where an entity needs to transfer thisinformation or data to overseas parties for business reasons, it must undergo a security assessment. The Cybersecurity Law will take effect on June 1, 2017. On April 11, 2017, the Cyberspace Administration of China issued the draft measures on security assessment of overseas transfer of personal information and important data (the for public comment until May 11, 2017. The highlights: The Draft extendsthe requirement on information and data subject to security assessment from key information infrastructure operators to all network operatorsthat collect and generate data. personal information overseas, network operators must inform the data subject of the purpose, scope and content, as well as the overseas recipient and its location, and . Legal flash Shanghai office 4 Before the transfer, network operators must conduct a security self-assessment at least once a year, and will be responsible for the assessment result. Results must be promptly submitted to the competent authority or supervision authority of the industry sector based on business development and network operation and, if there are significant changes in the purpose, scope, volume and type of data to be transferred overseas, the security assessment will be conducted again. If the data transfer meets one of the following conditions, network operators must request the competent authority or supervision authority to conduct the security assessment: (i) data includes personal information of over 500,000 individuals; (ii) data volume exceeds a terabyte; (iii) data includesinformation on nuclear, biochemistry, national defense and military industries, population and health, or other sensitive data; (iv) key information infrastructure operatorstransfer personal information and important data overseas. In these cases, an official security assessment must be completed within 60 working days. Overseas data transfers are prohibited if (i) the data subject has not given consent to transfer the personal information overseas, or if the transfer could infringe the data personal interests; (ii) the transfer could pose risks to the security of national politics, economy, technology or national defense, or could affect national security or jeopardize the public interest; or (iii) other circumstances arise determined by the competent authorities. Important data is defined in the Draft as data closely related to national security, economic development and public interests, without further detail. Date of issue: April 11, 2017. Deadline for public comment: May 11, 2017 Reform on company registration moves forward (国家工商 管理总局深入推进企业登记改革) In April 2017, the State Administration for Industry and Commerce released three opinions to boost the reform on company registration: the Opinions on Promoting the Full Electronic Process for Enterprise Registration, the Opinions on Pushing Forward the Electronic Corporate Business License in All Aspects and the Opinions on Promoting the Administrative Reform of Corporate Name Registration, in Circulars Gong Shang Qi Zhu Zi  No. 43, 47 and 54, respectively. Legal flash Shanghai office 5 The goals: Enterprise name registration To fully open the enterprise name databases before October 1, 2017, and establish a comprehensive system to check newly requested enterprise names against existing ones. To provide screening tips on applying for a new enterprise name: (i) if an enterprise name is prohibited or already exists, the tips will explain the grounds for prohibition or give a list of existing enterprise names; (ii) if an enterprise name is restricted, they will identify the restricted terms and specify which certificate or authorization document is required to complete the application; or (iii) in case of a similar enterprise name, they will list the similar names and draw attention to the risk of failure and possible infringement. To ease the hardcopy documentation burden of online application. To shorten the online application process by providing results on submission; if any of the above problems arise, results will be provided within three working days. To simplify the application process by combining enterprise registration and enterprise name registration, and by removing the requirement to submit the enterprise name preapproval certificate if the competent authorities are the same. To promote local legislation to cancel the enterprise name pre-approval procedure. Enterprise registration To facilitate online procedure by removing the requirement to submit hardcopies. Each local registration authority will open its online application system by the end of October 2017. To revise guidelines on current application forms and materials. To generate electronic business licenses, regardless of whether registration is carried out online or in person. Hardcopies will be available if requested. To use electronic signatures for online application. To establish a national unified administrative system for obtaining electronic business licenses. Legal flash Shanghai office 6 These three opinions are aimed at gradually reducing the burden of the registration procedure. Date of issue: April 10, 11 and 19, 2017, respectively. Effective date: April 10, 11 and 19, 2017, respectively Administrative measures on the thousand company groups register (千户集团名册管理办法) set up the Tax Administration Department for Large Enterprises, which specializesin supervising taxpayers above a certain threshold. In 2009, the Tax Administration Department for Large Enterprises selected 45 large companies for tax administration, and in 2015, it started to expand its target entitiesto carry out a nationwide selection of the . The 2016 selection tasks were completed in September, marking a new milestone. In November, SAT released Announcement  No. 67, requesting the thousand company their domestic member companies to file financial statements when making EIT quarterly and annual returns. In addition, headquarters are required to file annual consolidated financial statements before May 31 of the following year. To regulate the process of selecting the thousand company groups and collecting information, and the obligations assigned to the tax authorities and the companies, the SAT has now issued Announcement  No. 7 on Administrative Measures on the Thousand Company Groups Register. The highlights: 1. Selection process The thousand company groups include (i) company groups whose annual tax payment reaches the threshold set by the SAT, (ii) all state-owned companies and state-owned financial institutions, and (iii) single corporate entities whose annual tax payment reaches the above threshold. It includes Chinese invested company groups and foreign invested company groups. Annual tax payment refers to the total tax amount paid under any concept by the company s and domestic and overseas member companies in China, excluding customs duty, vessel tax and individual income tax withholdings, and without deducting export tax refunds or tax reliefs provided by the finance authorities. Legal flash Shanghai office 7 However, the threshold set by the SAT has not been disclosed. According to a speech delivered in 2016 by the head of the SAT, Mr. Wang Jun, the annual tax payment of the 1,062 company groups selected until then was over RMB 300 million, which could be used as a threshold for selection. The thousand company groups list will be determined by the SAT, routinely published and continuously updated. If any selected company groups are undergoing a merger and restructuring, bankruptcy or deregistration process, or do not reach the threshold for five consecutive years, they will be removed from the list. 2. Information collection procedure The headquarters of the selected company groups must annually update the group information in a register managed by the tax authorities and submit the required information to the provincial tax authorities before filing return by May 31. The provincial tax authorities will review the submitted information and report it to the SAT by June 30. The selected group companies must also confirm their member companies annually and update their n in the register by submitting it to the provincial tax authorities by the end of the return filing period in October. The provincial tax authorities will review the information and report to the SAT by October 31. The measures attach a standard information registration form, including information on the company name, tax identification number, unified social credit number, group name, previous Date of issue: March 6, 2017. Effective date: May 1, 2017 New EIT risk alert service (关于为纳税人提供企业所得税 税收政策风险提示有关问题的公告) On April 18, 2017, the SAT released Announcement  No. 10 on launching a new tax risk alertservice that will be provided during the annual EIT return period. Before filing the final EIT return, resident company taxpayers that operate on actual accounting basis and file their tax return online can request this service and ask the tax authorities to check the tax calculation, the reasonableness of the declared figures, and the relevance between the tax and financial indicators based on the draft declaration by filing some required information through the system. Legal flash Shanghai office 8 The procedure: Taxpayers fill in the EIT annual return form online and request the risk alert service. The system will assess the risk and notify the taxpayers in a brief period. After receiving feedback, the taxpayers may need to amend the EIT return or file additional information. In either case, taxpayers can go through the risk alert service again to check whether they handled the alerted issues properly. Taxpayersthat wish to use this service must file the relevant information with the draft EIT return at least one day before the final return is due. Using this service before filing the annual EIT return can reduce tax risks and improve efficiency in the tax return process. If taxpayers identify any mistakesin the annual EIT return after formal filing, they must go in person to the tax authorities to make any amendments. Date of issue: April 18, 2017. Effective date: April 18, 2017 Further clarification on administrative matters relating to the (关于进一步明确营改 增有关征管问题的公告) On April 20, 2017, the SAT released Announcement  No. 11 to further clarify certain administrative matters relating to the VAT reform. Its highlights: When taxpayers sell self-produced machinery and steel structures, and provide building and installation services for these goods, they must separate the sales revenue and the services revenue and apply different tax rates. Taxpayers that need to issue invoices in arrearsfor business tax activities carried out before May 1, 2016, when the full expansion of the VAT reform took place, can use VAT general invoicesfor this purpose before December 31, 2017. From June 1, 2017, small-scale taxpayers in the construction industry with a monthly sales revenue exceeding RMB 30,000 or a quarterly sales revenue exceeding RMB 90,000 can issue VAT special invoices for their taxable activities (except for sales of real estate). Legal flash Shanghai office 9 From July 1, 2017, when general VAT payers will obtain VAT special invoices, vehicle sales invoices and customs import VAT payment receipts for their purchases, they need to verify the invoices within 360 days from their date of issue for deduction purposes. The verification period was previously 180 days. Date of issue: April 20, 2017. Effective date: May 1, 2017, except for articles 9 and 10, which will enter into force on June 1, 2017, and July 1, 2017, respectively Contact Omar Puertas Partner firstname.lastname@example.org Cuatrecasas Shanghai office 20 F Shui On Plaza, 333 Huai Hai Middle Road Shanghai 200021, P.R.C. +86 21 2327 7000 +86 21 2327 7007 email@example.com ©2017 CUATRECASAS. All rights reserved. This document contains legal information produced by Cuatrecasas. This information does not constitute legal advice. Cuatrecasas owns the intellectual property rights to this document. 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