Meaning
Documentary evidence demonstrates the actual business operations and economic reality of an offshore holding company. The corporate substance dossier is a collection of records that proves an entity is not a shell. This file is requested by Chinese tax officials to verify that the entity has the right to tax treaty benefits or to justify an exemption from indirect transfer taxes.
Evidence Package
Tax authorities require a detailed set of documents to assess the operational validity of a firm. Within a corporate substance dossier, the taxpayer must include bank statements, office lease agreements and board meeting minutes. These documents show that the entity makes independent decisions and manages its own risks.
Operational Verification
Personnel records and payroll data form a part of the file. To satisfy the requirements of a corporate substance dossier, the company must show that it employs qualified staff who reside in the jurisdiction of the entity. An entity with no physical presence or employees will fail the substance test during an audit.
Economic Reality
Information regarding the flow of funds confirms that the company has control over its income. The corporate substance dossier must establish that the entity is the beneficial owner of its assets rather than a conduit for another party. Verification of these facts is necessary for the application of lower tax rates under international agreements.
