China Law Online Database : novexcn.com

You are using Guest Account

Subscribe To This Law Only

Subscribe To All Law Contents

Print This Page

Back




	NOTICE OF THE STATE ADMINISTRATION OF TAXATION ON THE RELEVANT ISSUES CONCERNING THE WITHHOLDING OF INCOME TAX ON SWAP TRANSACTION OF FINANCING BUSINESS CARRIED OUT BY THE ENTERPRISES IN CHINA WITH FOREIGN ENTERPRISES

	(promulgated on June 8, 2004)


SUBJECT : CORPORATE TAX; WITHHOLDING INCOME TAX; SWAP TRANSACTION
ISSUING DEPARTMENT : THE STATE ADMINISTRATION OF TAXATION
ISSUE DATE : 06/08/2004
IMPLEMENT DATE : 06/08/2004
LENGTH : 663 words
TEXT :

It is reflected that some domestic enterprises often make swap transactions with another overseas enterprise undertaking the financial risk business (mainly the overseas financial institution, hereinafter referred to the overseas transactor) after financing from overseas, for the purpose of evading the risk brought about by the alteration of market interests rate or exchange rate. With regard to the issue of tax handling of the relevant withholding of income tax on the payment in the swap transaction of overseas financing by the domestic enterprises, we hereby make the following notice in accordance with the relevant provisions of the Law of the People's Republic of China on Income Tax of the Foreign-funded Enterprises and Foreign Enterprises (hereinafter referred to the Tax Law) and its detailed implementation rules:

I. The "Swap Transaction" mentioned in this Notice shall refer to: The two parties of transaction exchange duty of payment periodically for the financing business of one party of the transaction on the basis of an agreement. The forms of swap transaction shall mainly include the interest rate swap transaction between fixed interest rate and floating interest rate, swap transaction of currency between fixed exchange rate and floating exchange rate, and the mixed swap transaction including the preceding two kinds of transactions.

II. A domestic enterprise shall, whether making the swap transaction or not on its financing business, pay the overseas creditor according to the conditions prescribed in the financing contract the various sums of money of an interest nature, which shall be regarded as the income from interests gained by the overseas creditor of the financing business from within the territory of China. And the enterprise income tax on such income shall be computed and deducted in accordance with the relevant provisions of the tax law.

III. Except the provisions of Article 4 of this Notice, where, due to a swap transaction, a domestic enterprise shall pay an overseas transactor the net income for completing a swap transaction, that shall not be regarded as the income from interests of the overseas transactor before there is any new provisions, and the enterprise price income tax on such net income shall not be withheld temporarily.

The "Net Income for Completing a Business Transaction" mentioned above shall refer to the net income gained after two parties of transaction set off the compensatory money they pay to each other according to the conditions of swap transaction on the basis of the stipulations of the swap transaction agreement.

IV. In case a domestic enterprise makes financing business with its overseas creditor, and makes swap transaction with the following overseas transactors, the net income for completing a business transaction prescribed in Article 3 of this Notice, which is paid by the domestic enterprise in China to the overseas transactors, shall be regarded as the income from interests gained by the said overseas transactors from within the territory of China, and the enterprise income tax on such income shall be computed and withheld£º

(1) The overseas transactor is the overseas creditor of the financing business;

(2) The overseas transactor has any relations of owning directly or indirectly, or being owned, or being owned by the same one person more than 80% of share rights with the overseas creditor of the financing business.

V. Where any overseas creditor mentioned in Article 2 of this Notice applies for enjoying preferential treatment of exemption from income tax according to the provisions of Article 19 of the Tax Law on its income from interests for a certain financing business, the actual level of interest rate of the financing project shall be computed on the basis of the total interests prescribed in Articles 2 and 4 of this Notice, so as to determine whether it belongs to preferential interest rate.

When a domestic enterprise applies for exemption of tax on the interests for its overseas creditor, it shall submit documents such as the loan contract and the relevant swap transaction contract to the local competent taxation authorities.