By Howard Mutti-Mewse

In early February of this year the China’s SAT (State Administration of Taxation) issued SAT’s Public Notice [2018]  (PN 9).


The notice provides sought after clarification in appropriately assessing beneficial owner status. The guidelines had been long awaited given it had previously been unclear under which conditions beneficial owners could benefit from China’s Double Tax Avoidance treaties.


Amongst others, PN 9 officially lays out the extension of the ‘safe harbour rule’ which applies to dividend income. From April 1, 2018 the rules shall apply to listed companies, governments or individuals who are resident of a jurisdiction which holds a relevant tax treaty, or company wholly owned directly or indirectly by such listed company, government, or individual. Previously the rule had only been applicable to listed companies.


PN 9 further goes on to set out guides for the ‘same jurisdiction rule’. In essence the rule sets out that the immediate shareholder of the Chinese obtained dividend revenue does not qualify as a beneficial owner, it may still be able to meet requirement for benefits provided under the treaty, if the following conditions are met:


  •  The shareholder who either directly or indirectly holds the full amount of equity interest in the direct receiver of the dividend is qualified as a Beneficial Owner or the shareholder is a tax resident in either the same jurisdiction as the direct receiver of the dividend or;
  • In another jurisdiction that has a Double Tax Avoidance treaty in place with China that offers equivalent or more complimentary handling from a fiscal perspective

The safe harbour and same jurisdiction rule are generally seen as positive, although PN 9 was not all favourable and it laid out rules to further fortify two of the seven ‘unfavourable’ regulations set out in Guoshuihan [2009] No.601 (Circular 601) for the assessment of beneficial ownership status.