Secondment under scrutiny

The Announcement on Issues Relevant to the Levy of Enterprise Income Tax on the Provision of Services in China by Personnel Assigned by Non-tax-resident Enterprises (关于非居民企业派遣人员在中国境内提供劳务征收企业所得税有关问题的公告) (Announcement 19), which came into effect on June 1 2013, provides detailed guidance about when seconded employees will create a taxable presence of a multinational (MNC) in China. Announcement 19 clarifies and expands upon certain dependent agent permanent establishment (PE) concepts discussed in an earlier circular (Announcement 75) dealing with the interpretation of tax treaties generally. The Announcement is indicative of a general policy shift towards increased tax scrutiny of foreign MNCs operating in China.

More recently, Announcement 40, which came into effect on September 1 2013, provides some relief in relation to outbound remittance of expatriate related costs. Before this Announcement, Chinese hosts of expatriate employees needed to obtain a tax clearance certificate in order to reimburse secondment expenses to an MNC. Such clearances would often be refused or would be accompanied by difficult questions about an MNC's activities in China. Announcement 40 eliminates the need for tax clearance certificates and associated tax reviews.