Month: Noviembre 2009
The Promulgation of New Merger-Control Regulations (Ref. Anti-Monopoly Law)
The Ministry of Commerce (“MOFCOM”) issued the Measures for the Reporting of Concentrations of Business Operators
(“Reporting Measures”) on November 21, 2009 and Measures for the Review of Concentrations of Business Operators
(“Review Measures”) on November 24, 2009. Both of the regulations related to Anti-Monopoly Law will take effect on January 1, 2010.
The Reporting Measures mainly the following respects:
- The definition of “Concentrations of Business Operators”;
- The definition of “Turnover of the Business Operators” and the specific calculation methods of the turnover under different circumstances;
- The list of documents for the reporting.
The Review Measures mainly regulate the issues as follows:
- The MOFCOM is in charge of reviewing the reporting of concentrations of business operators;
- The hearings can be held during the review and the regulations & procedures of the hearings are also stipulated;
- The review is divided into two parts: preliminary review and further review;
a. During the preliminary review, contradict the review decision made by MOFCOM;
b. During the further review, the business operators can propose some restrictions to themselves on concentration.
Though the two regulations clarify the issues on the concentration reporting and review, they also create increased uncertainty. The previous draft of Reporting Measures defined what constitutes “acquisition of control”, but it was entirely removed from the Reporting Measures, which means that operators need to consult with MOFCOM before going ahead with many deals. The Reporting Measures are also missing guidance on joint ventures, including if and when joint ventures constitute concentrations under Anti-Monopoly Law.
Without the definition of those formal rules, it seems that MOFCOM has made on incomplete progress. The recent changes seem to also give MOFCOM a broader discretionary power, which will most probably increase uncertainty.
Notice on Interpretation and Determination of The Concept of "Beneficial Owner" for The Application of Tax Treaties
The State Administration of Taxation issued the “Notice on Interpretation and Determination of Beneficial Owner under Tax Treaties” (the "Notice").
The Notice intends to regulate the acts of foreign companies preventing them from taking advantage of the “double taxation arrangements” signed by China.
The following are the main contents of the Notice:
1. According to the Notice, a "beneficial owner" is a person who has owned and controlled the income or the rights and assets which generate the income. A beneficial owner can be an individual or a company, and is basically the one who carries out the substantial business.
An agent or a conduit company is not a beneficial owner. The "conduit company" is set up for the purpose of avoidance or reduction of tax, the transfer or accumulation of profit.
2. The Notice also lists seven factors, which may lead to determine the existence of a “conduit company”. The following factors deserve especial mention:
a. The applicant has no or almost no business activities other than holding the rights or assets which generate the income;
b. If the applicant is a company, which assets, business scope, and personnel are small, and does not match the amount of income;
c. The applicant has no or almost no right to control or dispose of the income or the rights and assets which generate the income, and also assumes no or little risk.
The promulgation of the Notice indicates that Chinese government has taken actions to crack down on treaty shopping by nonresident enterprises. This Notice makes more difficult for multinational companies to enjoy the benefits established in the tax treaties between China and other countries and regions.
In any case, it must be noticed that theoretically the other parties of the tax treaties should also agree with the Notice and the relevant regulations for them to become fully applicable to the relevant parties.