“Announcement of the State Administration of Taxation on Several Issues concerning the Collection Administration of Enterprise Income Tax in Enterprise Restructuring Business” (as “Announcement of the State Administration of Taxation `2015` No.48”) was issued by State Administration of Taxation recently.

1.    “Pre-approval” was changed to “Post-registration”

According to Announcement No. 48, for enterprise restructuring business to which the special tax treatment is applicable, except for the circumstance under which simple changes in other legal forms of an enterprise occur as specified in Item 1 of Article 4 of Circular Cai Shui `2009` No.59, the parties involved in restructuring shall respectively submit the relevant documents and the declaration materials to the competent tax authorities when handling the annual tax declaration for the enterprise income tax of the year after the restructuring business is completed. The restructuring party in a merger and division involving cancellation shall conduct declaration before going through the formalities to cancel the tax registration.　

2.    Administration on the step transactions conducted within 12 consecutive months lasting two tax years

According to the provisions of Article 10 of Cai Shui `2009` No.59, if one restructuring business involves the step transactions conducted within 12 consecutive months lasting two tax years, and if the parties concerned anticipate that the whole transaction will comply with the conditions to apply for a special tax treatment after the transaction is completed in the first tax year, and if such parties agree to adopt the special tax treatment through consultation, then the special tax treatment may temporarily apply and the declaration materials shall be submitted in written form when the parties concerned declare the annual enterprise income tax for the relevant year.

After the whole transaction is completed in the next tax year, the enterprises should judge whether the special tax treatment is applicable. If the special tax treatment applies, the parties concerned should submit the relevant materials according to the requirements of Announcement `2015` No. 48. If the general tax treatment applies, the annual declaration form for enterprise income tax of the corresponding tax year shall be adjusted for the calculation and payment of enterprise income tax.

 3.     The responsibility for the tax authorities to establish an account

When an enterprise runs into debt restructuring as stipulated in Item 1 of Article 6 of Circular Cai Shui `2009` No.59, the enterprise shall accurately record the income from debt restructuring which shall be recognized, and, at the time of final settlement of enterprise income tax for the corresponding year, explain the recognized amounts of the relevant year and the amounts carried forward by year.
The competent tax authorities shall establish an account and conduct comparison and analysis of the account and the income from debt restructuring as declared by the enterprise every year, to strengthen the follow-up management.
When debt restructuring as stipulated in Item 3 of Article7 of Circular Cai Shui `2009` No.59 occurs, a resident enterprise shall accurately record the income from debt restructuring which shall be recognized, and, at the time of final settlement of enterprise income tax for the corresponding year, explain the recognized amounts of the relevant year and the amounts carried forward by year.
The competent tax authorities shall establish an account, and conduct comparison and analysis of the tax basis of the equity acquired by the resident enterprise and the income from asset or equity transfer as recognized every year, to strengthen the follow-up management.

Dongjin Comments

It is not only an administrative change from pre-approval to the post-registration. The local tax bureau will pay more attention to the whole restructuring process on their dynamic changes.

If you want to know more details, please contact our senior consultant.

Ms. Jojo Hu

TEL: 0086-21-68868335 ext 324 / FAX: 0086-21-68868021

Email: jojohu@shanghaiinvest.com