The State Administration of Taxation of China (SAT) released the long-awaited Public Notice  No.9 (Public Notice 9) on 3 February 2018. Public Notice 9 provides additional guidance on assessing the beneficial ownership status for the purpose of enjoying the treaty benefits under China’s tax treaties. Public Notice 9 will take effect from 1 April 2018.
The two favorable changes brought about by Public Notice 9 for claiming treaty benefits on dividends received from China are: (1) extending the scope of the “safe harbour rule” stipulated in the SAT Public Notice  No.30 (Public Notice 30) such that it now does not only apply in respect of listed companies but also governments and individuals and (2) introducing the new “same jurisdiction/same treaty benefit rule” in respect of multi-tier holding structures. On the other hand, Public Notice 9 has tightened two of the seven unfavorable factors set out in Guoshuihan  No.601 (Circular 601) for assessing the beneficial ownership status.
Business groups investing into China through a Hong Kong holding company should review whether the “extended safe harbour rule” or the “same jurisdiction/same treaty benefit rule” in Public Notice 9 can facilitate their Hong Kong holding companies to enjoy the treaty benefit under the dividends article of the China/Hong Kong double tax arrangement (China/HK DTA) based on their existing investment/ business structure. They may need to consider carrying out a group restructuring in order to leverage on the flexibilities offered by Public Notice 9 in fulfilling the beneficial ownership status. In cases where the “extended safe harbour rule” or the “same jurisdiction/same treaty benefit rule” cannot be applied, these groups need to evaluate the impact of the tightened unfavorable factors on them and establish strategies to deal with these changes.