China further encourage corporate M&A and restructuring

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1、IssueNo.CTIN201500109Jan2015ChinaTax&InvestmentNewsChinaMOFandSATfurtherencouragecorporateM&AandrestructuringBackgroundChinaStateCouncilreleasedacircularGuofa[2014]No.14(Circular14)on7March2014,whichcallsforvariousgovernmentalbodiestomakeeffortsinbuildingbet

2、terandmoreefficientenvironmentforMergers&Acquisitions(M&A)activitiesinChina.Toachievethisgoal,Circular14providesoverallguidanceinthetaxationarea,includingrelaxingCorporateIncomeTax(CIT)treatmentonbusinessrestructuring,andimprovingLandAppreciationTax,Business

3、TaxandValue-AddedTaxpoliciesinvolvedinM&Atransactions.InresponsetotheaforesaidrequirementsprescribedinCircular14,MinistryofFinance(MOF)andStateAdministrationofTaxation(SAT)ofthePRCrecentlyreleasedCaishui[2014]No.109(Circular109)furtherrelaxingandclarifyingCI

4、TtreatmentoncertainequityandassetsacquisitionsandtransfertogetherwithCaishui[2014]No.116(Circular116)clarifyingCITtreatmentonnon-monetaryassetinvestment.ThisissueofChinaTax&InvestmentNewsistodiscussthedetailsofthesetwonewrulesandtheirimplications.ChinaTax&In

5、vestmentNews1KeyfeaturesCirculars109and116areprecededbyCircular14,providingdetailedtreatmentinresponsetoguidingprincipleslaidoutinCircular14;thekeyfeaturesinclude:GuidingPrinciplesunderDetailedtaxtreatmentsunderCirculars109and116Circular14Circular109relaxess

6、pecialrestructuringtreatmentcriteria1underCaishui[2009]No.59(Circular59).ForequityacquisitionReducingtheminimumequity(assets)acquisition►TheminimumequityacquisitionpercentagetoqualifyforCITdeferralpercentagetoallowmoretreatmentisreducedfromthecurrentthreshol

7、dofatleast75%ofthetoqualifyforCITdeferraltotalequityinterestinthetargetenterpriseto50%treatment,i.e.,specialrestructuringtreatmentForassetacquisition►TheminimumassetacquisitionpercentagetoqualifyforCITdeferraltreatmentisreducedfromthecurrentthresholdofatleas

8、t75%ofthetotalassetsinthetransferorenterpriseto50%AccordingtoCircular109,atransferofequitiesorassetsduringabusinessrestructuringiseligiblefortaxdeferraltreatmentifitsatisfiesalloffollowingcondit