Service Permanent Establishment Day Counting Rules under Chinese Double Tax Agreements
Exceeding 183 service presence days within twelve months under Chinese tax treaties creates corporate tax liability assessed on deemed profit margins.
Secondment Agreement Audit
Meaning
Regulatory inspections of foreign staff assignments verify whether an intercompany arrangement is a genuine secondment or a taxable service provision. During a secondment agreement audit, officials examine the control the foreign parent maintains over the personnel. The goal is to determine if the parent company has created a service permanent establishment.
Auditors Examination
Auditors review the daily reporting lines and management structures to see who actually directs the work of the seconded staff. In a secondment agreement audit, the presence of performance appraisals conducted by the foreign parent suggests that the personnel are still serving the interests of the overseas office. The tax bureau also checks whether the Chinese company has the right to refuse specific individuals or request replacements.
Evidence of the parent company making key decisions indicates a service relationship rather than a simple personnel loan.
Intercompany Recharging
Intercompany billing practices must align with the actual costs of the salaries and benefits without adding a profit margin. When conducting a secondment agreement audit, the tax office looks for any markups or administration fees included in the invoices from the foreign parent. Pure reimbursement of costs is generally seen as supporting the claim of a true secondment.
If the billing includes extra charges, the entire arrangement may be treated as a commercial service contract subject to withholding tax.
Managing Mitigation
Managing the documentation for staff assignments involves keeping clear records of work descriptions and contract terms. To prepare for a secondment agreement audit, companies should ensure that the local entity handles the day to day supervision and pays the social insurance contributions directly where possible. Formal letters of assignment should specify that the individual works under the direction of the Chinese management team.
These steps help prove that the foreign parent is not conducting its own business activities through the seconded personnel.