Interpretation of Circular No.698/Jian Sun(3)
(4) The relationship of the offshore holding companies transferred by foreign investors and Chinese domestic enterprises regarding finance, operation, purchase and sale, etc.
(5) The Explanations of reasonable commercial objectives of establishment of offshore holding companies by foreign investors.
(6)Other relevant documents required by Taxation Authorities.
Where administrating tax authorities, upon review and examination of the documents submitted by foreign investors, deem such offshore holding company to be a vehicle incorporated for the purpose of tax evasion, it has the power to re-classify the share transfer transaction in according to the nature of economies, deny the existence of offshore holding company and impose 10% income tax to the transfer of shares after the examination by the State Administration of Taxation.
In the second place, when non-resident enterprises transfer Chinese resident enterprises to affiliated parties in the unfair price compared to the fair and independent transaction to reduce the taxable income, tax authorities have the power to adjust the income by proper methods.
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