May 2009, Issue 11Promulgation of China's new tax implementation rules for corporate restructuring
In general, the purposes of companies undergoing corporate restructuring are multiple, namely achieving operational efficiency, raising funding, streamlining corporate structures, enhancing business objectives, etc., and the forms of the corporate restructuring also vary. In the good times, many business expansions take place via corporate restructuring; equally in the economic downturn, corporate restructuring is also commonly used in streamlining operation to improve efficiency.
The China Corporate Income Tax ("CIT") regime has yet to provide a very comprehensive tax rules to address corporate restructuring. The Detailed Implementation Regulations ("DIR") to the China's CIT Law merely stipulates that, where an enterprise undergoes a corporate restructuring, it has to recognize the gain or loss resulting from the transfer of the relevant assets at the time of the restructuring, and the tax basis of the relevant assets shall be revised according to the transaction prices, unless it is otherwise prescribed by the Ministry of Finance ("MoF") and State Administration of Taxation ("SAT").
We reported in the April 2009 Issue 10 of our News Flash about the upcoming set of new tax implementation rules for corporate restructuring and their likely directions. The MoF and SAT finally jointly released the rules for corporate restructuring ("Restructuring Rules") under the Notice entitled "Several Questions about CIT Treatments for Corporate Restructuring" - Caishui [2009] No. 59, on 30 April 2009.
In this Issue, we will summarize the salient points of the Restructuring Rules, and highlight the key features of the Restructuring Rules for our clients to appreciate them and take necessary actions.
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