What are the China corporate income tax implications on the dividend distribution from ABG Limited under the corporate income tax law and the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income

Question 1

In respect of the proposed arrangement in item (1) of the case, you are required to help Miss Margaret Hui to understand:

 

• Based on the corporate income tax law and regulations in China, and Guoshuihan [2009] No. 698 (10 December 2009), explain to Margaret the tax implications in respect of the three arrangements of transferring the equity interest in ABG Limited, Gamma Limited and Beta Limited respectively.

(20 marks)

 

• Elaborate the possible defensive strategies to combat the potential attacks from the Chinese tax authorities. What are the valid arguments?

(20 marks)

 

(Total 40 marks)

Question 2

In respect of the proposed arrangement in item (2) of the case, you are required to explain to Margaret:

 

• What are the China corporate income tax implications on the dividend distribution from ABG Limited under the corporate income tax law and the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (21 August 2006)?

(10 marks)

 

• What are the specific requirements under Guoshuihan [2009] No. 601 for ascertainment of beneficial interest?

(20 marks)

 

• What would be the scenario of dividend flow for the purpose of China corporate income tax if both Gamma Limited and Beta Limited were decided to be ignored by the Chinese tax authorities for the purpose of Guoshuihan [2009] No. 698 and Guoshuihan [2009] No. 601?

(10 marks)

 

(Total 40 marks)

 

 

(Note: You should cite the relevant tax laws, regulation and rules as appropriate to support your opinion and analysis in all of your answers to Question 1 and Question 2.)

 

Marking Scheme: 80 marks are basically assigned to Questions 1 and 2 at 40 marks each respectively.  20 marks (representing 6% of the total continuous assessment or 3% of the overall total assessment) shall be assigned to written English proficiency, presentation, originality, extensive reference, suggestions and arguments.

 

To reflect the contributions to the achievement of MAcc Programme Outcomes by enabling students to explain current tax laws, and apply established tax principles and practices to analyze business situations and problems in the specific business setting of the mainland China, develop a critical insight and appreciation through effectively interpret up-to-date tax legislations, rules, and guidelines and analyze practical tax issues relating to their business operation, and apply the current tax law and practices on taxation implications in corporate governance and corporate management decision making, the assessment of the following parts in this Individual Strategic Case will be specifically made:

 

(a)    explain the current laws and apply the principles and practices relating to taxation for individual and foreign-invested entities operating business in the mainland China;	Question 1(a) Question 2(a) and (b)
(b)   effectively interpret tax legislations, rules, and guidelines and analyse practical tax issues through critically evaluate the tax consequences of various types of structure of business transactions and provide professional advices on the China tax system and its operation as well as tax implications on individuals and business entities; and	Question 1(b) Question 2(c)
(c)  apply the tax knowledge in corporate governance and management decision making through strategically formulate and carry out China tax planning ideas and policies in relation to individual and business transactions in order to minimize their explicit tax liabilities or enhance their tax efficiency and effectiveness.	Question 1(b) Question 2(c)