On 24 March 2016, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly released CaishuiNo.36 (“Circular 36”) on the Comprehensive Roll-out of the B2V Transformation Pilot Program (“B2V Pilot Program”) under which the real estate sector, the construction sector, the financial services and the consumer services have been transformed from Business Tax (BT) to Value Added Tax (VAT) starting from 1 May 2016. Since then, the MOF and SAT have released a series of follow-up circulars to clarify the relevant issues under the B2V Pilot Program.
On 29 August 2016, the SAT released a Public Notice Regarding Certain Tax Collection and Administration Matters under the B2V Pilot Program (“PN 53”), clarifying a few specific issues. The more important issues being clarified include treating some services provided by entity or individual outside the territory of China to entity or individual within the territory of China not to be services within the territory of China, determining the purchase price for the transfer of restricted shares and the VAT treatment of commercial debit cards. PN53 shall take effect from 1 September 2016 and tax treatments of cases that have occurred before the effective date but are not yet settled shall follow PN53. We believe that the rules in PN53 would greatly impact taxpayers. In this News Flash, we have carried out a detailed analysis on the above key issues, looked back at the development and progress of the relevant policies before and after the B2V Pilot Program, analysed relevant issues that still need to be resolved and share our observations and views.