Strengthened Enforcement on the Taxation of Capital Gains Derived Indirectly by Non-Residents Further Impacts Inbound Investments

The authors discuss in detail Circular 698, which was recently issued by the Chinese tax authorities on the subject of the tax treatment of capital gains realized by non-residents. Circular 698 emphasizes the substance over form approach and aims to deny tax benefits for transactions which are tax-abusive. The article also provides a practical perspective on the current positions taken by the tax authorities and the impact this may have on investment models into China.