Not sure what Circular 698 is?
Comments (0) Good little post by one of my Hwuason colleagues over at China Tax Blog on the operation of the myriad of Chinese tax laws and regulations. It can be rather confusing at times. That post should give you some idea of where Guoshuihan 698 came from and where it sits within the Chinese tax framework. It is basically an internal policy document – an interpretative document in respect of GAAR (Article 47) in respect of off-shore companies. Strictly speaking it cannot be binding on taxpayers. The source of the legal basis for the requirements of the circular must be found elsewhere – in this case the SAT would argue Article 47 of the Enterprise Income Tax Law and Article 120 of the Implementing Regulations would provide such a legal basis. Whilst this may fine for the substantive part of Circular 698 (that avoiding tax through interposing an off-shore company may be subject to tax adjustment), it is not clear what is the legal source of the documentation requirements.
However, this is pure legal analysis. Such legal niceties are not always relevant in tax administration in China and, as Zhiqun points out, in practice circulars like 698 effectively have the force of law.
