The only anomaly in the Circular that I can see is the documentation requirements. However, it is likely that this same information would need to be disclosed in the Chinese company’s China transfer pricing report (I would imagine that any such structure would also include inter party transactions) so its doubtful that these requirements will create significantly more work.

In terms of the substantive issue, so long as you can document your non-tax reasons for having such a structure it is doubtful to create an issue.

In overall terms, I cant imagine why anybody would dispute China’s right to tax, what is in substance as opposed to form, the sale of a Chinese resident enterprise. If Circular 698 is used for this purpose, as the SAT have indicated it will be, I similarly dont really understand the hysteria.

My (limited) tax knowledge is also Aussie-based and I, at least, do know about Part IVA of the Australian ITAA. Put in this context, Circular 698 appears on par with world practice.

This reminds me of the time when the Chinese Ministry of Commerce issued its amended M&A provisions in Sept 2006, providing for the review of foreign investment in strategically important areas and well-known Chinese brands. There was a hue-and-cry for a bit before everyone realised that this (a) did not affect the vast majority of M&A activity in China and (b) was consistent with practice in other countries.

Just because it’s China, it seems, we tend to jump to conclusions.