Research & Analysis

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.

A company seal, or chop, is integral to the administration of a company and the key to legally authorize documentation in China. An electronic chop– the digital version of its physical counterpart– can be used for online transactions. However, electronic chops are susceptible to misuse, which can have severe financial and legal implications.

By Heidrick & Struggles As mobile technology, constant connectivity, and data analytics become increasingly embedded in the fabric of daily life, few businesses have been left untouched. Digital disruption—the changes that result from applying new technology to goods or services—is not limited to digital natives such as Google or Uber. Traditional industries from manufacturing to banking […]