Intermediary Equity Layers in Cross Border Investment Structures
Intermediary equity layers require operational substance in holding jurisdictions to secure tax treaty rates and clear indirect transfer tax audits.
Tax Clearance Certification
Meaning
An official document issued by the State Taxation Administration to confirm that a taxpayer has no outstanding liabilities or unresolved disputes with the government. This tax clearance certification is required for material corporate actions such as merging with another entity, closing a business or transferring large sums of money abroad. It serves as a final verification that all obligations under the prevailing tax laws have been met.
Compliance Proof
Obtaining the certificate involves a thorough review of the company’s records for the past three to five years. Tax officials check for any unpaid value added tax, corporate income tax or specialized surcharges that should have been remitted. This process can include a physical audit of the company’s premises and a detailed examination of its bank statements to ensure that no revenue was hidden.
Banks Remittance
Banks require the presentation of this certificate before they will process an application to repatriate dividends or move capital out of the country. This rule prevents companies from leaving the jurisdiction without paying their taxes and ensures that the government has a final opportunity to collect any money owed. The certificate is typically valid for a limited period and must be used shortly after issuance.
Administrative Finality
Once the certificate is issued and the transaction is completed, the tax bureau generally considers the specific tax period for that transaction to be closed.