Meaning
Administrative notices clarify the procedures for foreign residents to claim the benefits of a tax treaty when they receive dividends or interest from China. Under sta public notice 2013 no 56, the tax bureau establishes a set of safe harbor rules for determining the beneficial ownership of income.
Qualifying Requirement
Qualifying as a beneficial owner is a requirement for reduced withholding tax rates. This status is denied to agents or shell companies that do not have the right to dispose of the income.
The Rule
The notice provides that a resident of a treaty country who is a listed company or is owned by one will generally be recognized as the beneficial owner. This simplification reduces the administrative burden for large multinational groups. It also applies when the income is received by a resident in the same jurisdiction as the parent company.
The bureau uses these rules to prevent treaty shopping and to ensure that only genuine residents benefit from the tax reductions.
Taxpayers Duty
Taxpayers must still submit a reporting form and maintain documentation to support their claim. The tax authority retains the right to conduct a post filing audit and claw back any unpaid taxes if the safe harbor was used incorrectly.
