Revisit offshore SPVs to avoid taxation

Counsel are again highlighting the importance of two recent changes in Chinese law: the PRC's new tax Circular 698, and the Supreme People's Court's nominal clarification of material adverse change clauses.

“Investors should consider that holding vehicles in treaty jurisdictions may not have the benefit of reduced withholding rates under the treaties, and that transactions in shares of offshore holding vehicles may also be subject to PRC tax,” said Cleary Gottlieb Steen & Hamilton's Filip Moerman while speaking about Circular 698 at IFLR's 2010 M&A Forum. “A purchaser may be at risk post-closing of challenge by the tax authorities that it should have withheld capital gains tax at closing.”