Tax Newsletter - July / August 2016

Tax Newsletter

Welcome to the latest issue of our Tax Newsletter. In this issue we cover a number of developments and cases in the PRC and Hong Kong which could impose legal and tax implications to your business.

In the past two months, there have been several developments on the China side. Following the final roll out of the VAT reform on May 1 this year, new circulars were issued to address some pre-May 2016 business tax issues, as well as providing an extension on the terms of certain old VAT preferential policies respectively. Draft provisions on VAT accounting treatment was also released for public comments. Besides, the State Administration for Taxation (SAT) amended the administrative measures to optimize the administration in respect of the export VAT exemption/refund. Pleasantly, we have seen that relevant tax treatments on pre-paid shopping cards have been further clarified. In addition, the State Council has revised certain issues on a recently issued customs inspection regulation with the aim to simplify the enterprises' declaration formalities and inspection procedures.

Last but not the least, two tax agreements have become effective, namely, the new tax treaty between China and Russia which has taken effect from April 9, 2016 and the reciprocal VAT exemption agreement between China and Poland on international air transportation services which has come into force on July 1, 2016.

In Hong Kong, the HKSAR Government has enacted Inland Revenue (Amendment) (No. 3) Ordinance 2016 related to the Standard for Automatic Exchange of Financial Account Information in Tax Matters.

In addition, the US Foreign Account Tax Compliance Act (FATCA) between the United States and Hong Kong entered into force on 6 July 2016. Upon FATCA, financial institutions in Hong Kong are able to seek consent for disclosure from US clients, and to report relevant tax information of such clients to the US Internal Revenue Service. Meanwhile, Hong Kong will soon be considered as a "tax haven" for Belgian tax purposes.

In a recent case regarding taxable profits in Hong Kong, the Board of Review has adopted a stringent approach in assessing offshore claims by considering all specific facts and circumstances (a Hong Kong bank account to receive payments from customers, a registered office in Hong Kong, 2 persons works on behalf of the company to handle purchase orders, emails, parcels, etc.).

Also, the Inland Revenue Department ("IRD") has recently issued an Advance Ruling Case No. 58 regarding carryover of profits and loss in intragroup amalgamations.

Read the full issue of our Tax Newsletter.