Meaning
A joint regulatory circular issued by the Ministry of Finance and the State Administration of Taxation that governs the enterprise income tax treatment of corporate restructurings, mergers, divisions, asset acquisitions, and share transfers in China. For foreign and domestic businesses, Caishui 2009 No 60 establishes the conditions under which a transaction qualifies for special tax treatment, allowing the deferral of corporate income tax liabilities. This document distinguishes between ordinary tax treatment, where gains are recognized and taxed immediately, and special tax treatment, which permits deferral if specific equity and commercial purpose thresholds are met.
Regulatory Framework
The directive establishes a core distinction between taxable transactions and tax-deferred reorganizations. To qualify for deferral under Caishui 2009 No 60, the transaction must possess a reasonable commercial purpose and must not have the reduction, minimization, or avoidance of tax as its primary objective. In addition, the ratio of equity payment to total consideration must not be lower than eighty-five percent.
This threshold ensures that only genuine consolidations, rather than disguised asset sales, receive the tax deferral.
Corporate Restructuring
Cross-border restructurings face stricter conditions under this administrative circular. When a foreign enterprise transfers equity in a domestic Chinese company to another foreign subsidiary, the transfer must not reduce the future tax liability on subsequent gains. The circular requires the transferee to remain a wholly owned subsidiary of the transferor or meet other high-equity ownership criteria.
If these rules are breached, tax authorities will assess the transaction under ordinary tax rules.
Administrative Compliance
Corporate parties must file a specialized disclosure package with their in-charge tax bureau within thirty days of the restructuring agreement’s execution. This filing requires submission of asset valuation reports, board resolutions, and reorganization agreements. Failure to provide adequate documentation leads to the automatic rejection of the deferred tax status.
The local bureau’s approval must be secured before any outbound remittance of related proceeds can be authorized by the State Administration of Foreign Exchange. In practice, tax authorities scrutinize the transaction post-filing and can retroactively claw back deferred tax if the commercial substance of the restructuring changes within twelve months.
