Research & Analysis

In July, China’s State Council released data showing that the country is aiming to construct 3,500 new urban areas by 2030, with a collective capacity of 3.4 billion residents – roughly half of the world’s population. Although criticized as unrealistic, the target underlines a major problem China faces.

USCBC hosted its annual Gala, featuring a bipartisan panel with former US Treasury Secretary Henry Paulson Jr. and former National Security Advisor Thomas E. Donilon. USCBC board chair, Mark Fields, President and Chief Executive Officer of the Ford Motor Company, moderated the discussion, which focused on the state of US-China relations and the future of the increasingly complex relationship between Washington and Beijing. The program also featured China’s top envoy to Washington, Ambassador Cui Tiankai, who has distinguished himself for his service strengthening the ties between the two largest global economies and as a strong supporter of USCBC. Gala is our flagship fundraiser and an important component of ensuring USCBC remains at the forefront of representing American business interests with China. USCBC will continue to play a critical role during the transition to a new administration and represent the best interests of the American business community.

Most Multinational Corporations (MNCs) charge intercompany service fees for services provided to other entities within the same company or business. In China,tax authorities regularly encounter inconsistencies in transfer pricing for intercompany services due to lack of access to necessary information due to opaque business structures, unclear rules under Enterprise Income Tax (EIT) laws, and difficulty determining whether selected transfer pricing methods for services comply with the arm’s length principle. Companies found guilty of these inconsistencies can be penalized by China’s tax authorities, making it essential to understand the country’s regulations connected to intercompany services.

Hong Kong and China entered into a Double Taxation Arrangement (DTA) in 2006. The treaty’s purpose is to avoid double taxation, reduce tax evasion, improve ties between both jurisdictions by reinforcing their respective tax laws, encourage competition, and promote investment. A fourth protocol was signed on April 1, 2015, which amended four key aspects of the DTA, including a tax exemption for capital gains derived by foreign investors that sell shares of a China-based company. Companies should be aware of these changes and how to calculate the capital gain tax of restricted shares when applying for a capital gains tax exemption. Below, we construct a case study to explain the capital gain tax calculation and its impact on companies.