Ubilla y Cía. Gestiona Primer Derecho Real de Conservación
El proyecto Bella EcoAldea de Rari, se transformó en la primera iniciativa chilena en su tipo bajo la nueva Ley de Derecho Real de Conservación, promulgada a comienzos de julio y ha considerado la participación de empresarios y profesionales jóvenes interesados en desarrollar nuevos modelos de negocios sustentables en el área inmobiliaria, agrícola, comercial y de servicios.
Una inversión de US$ 14 millones durante la próxima década contempla la recientemente creada Bella EcoAldea de Rari, que se transformó en la primera iniciativa chilena bajo la nueva Ley de Derecho Real de Conservación, promulgada a comienzos de julio.
Este proyecto ha considerado la participación de empresarios y profesionales jóvenes interesados en desarrollar nuevos modelos de negocios sustentables y nuevas formas de cooperar e interactuar. Estas inversiones redundarán en un enriquecimiento adicional no solo a nivel económico, sino también desde perspectivas educacionales y socio culturales transversales, así como la creación de nuevos empleos y la ejecución de planes de ecoturismo y agricultura sustentable.
La Bella EcoAldea es un emprendimiento de vida comunitaria ubicada en el poblado de Rari, comuna de Colbún, que ha sido llevado adelante por el artista y emprendedor Nikola Bahna. Corresponde a un predio de 50 hectáreas que forma parte de la Zona Ecológica de Transición, entre los Ríos Maule y Biobío, de gran riqueza en biodiversidad y especies endémicas que conviven con la actividad ganadera propia de esta zona.
Esta iniciativa sustentada en el nuevo cuerpo legal recién aprobado, tiene proyectado consolidar un conjunto de 21 familias residentes en el área, las que se desarrollarán bajo reglamentos de conservación de áreas especiales de biodiversidad así como reglamentos de bioconstrucción, generación de energía, utilización del agua, comportamiento en espacios comunes y gestión de residuos.
Fuente: Hub Sustentabilidad
La “Facultad de Conservar”: un Nuevo Paradigma
De ser utilizado correctamente, el Derecho Real de Conservación puede hacer posible el establecimiento de diferentes derechos de relativos al tema sobre un mismo inmueble, respecto de distintos atributos, servicios ecosistémicos, procesos o componentes naturales, lo cual, además de generar los procesos sociales antes mencionados, proveerá también una fuente variada de financiamiento a los propietarios y a la conservación.
Junio de 2016 será recordado como un mes excepcional para la historia, no solo de la legislación de conservación sino también para el derecho civil.
Con la creación del Derecho Real de Conservación, Chile toma liderazgo al establecer una nueva forma de derecho real, un derecho real de carácter activo que se define en torno a la “facultad de conservar”. El establecimiento de esta facultad implica su reconocimiento separado de las facultades clásicas de uso, goce y disposición. Esta facultad puede establecerse no solo sobre un inmueble o parte de él, sino que además sobre los atributos o funciones del patrimonio ambiental de dicho inmueble.
Durante la discusión parlamentaria, particularmente en las comisiones de Constitución y Medio Ambiente del Senado, presididas respectivamente por los senadores Alfonso de Urresti y Antonio Horvath, se hizo posible trascender la figura de las servidumbres de conservación utilizadas en otras jurisdicciones, estableciendo este nuevo derecho real activo que facilita el reconocimiento de la 'nueva riqueza' que deriva de los ecosistemas y del patrimonio ambiental en general.
Variadas consideraciones teóricas analizadas y contribuidas por el Centro de Derecho de Conservación condujeron a la conclusión de que solo adicionando esta nueva 'facultad de conservar' sería posible facilitar la inclusión de nuevas valoraciones respecto de tangibles e intangibles ambientales, urbanos o rurales.
En este sentido, este derecho es una innovación transformadora del Derecho Civil, ya que no solamente agrega o delinea una nueva facultad dentro de los derechos reales sino que, por su diseño institucional, hace más probable la cooperación entre los distintos grupos de interés que pueden concurrir en un mismo espacio para conservar distintos atributos o funciones del medio ambiente.
En otras palabras, esto es lo que se puede denominar un derecho reflexivo que hace posible que distintas observaciones sociales concurran en el espacio social y en la relación con los bienes. En esto, como lo observó el Centro de Derecho de Conservación, estaba también en juego un elemento clave para el futuro de la gestión del medio ambiente: el desarrollo de nuevo conocimiento.
No podemos dejar de observar que una innovación de este tipo no ha ocurrido desde tiempos del Derecho Romano y hoy se ha hecho más que necesaria, dado el nuevo conocimiento disponible y dadas las necesidades contemporáneas en materia de conservación del patrimonio ambiental.
En concreto, este nuevo derecho real se orienta a facilitar la conservación en el largo plazo de la más variada gama de hábitats naturales o de “intangibles” ambientales o servicios ecosistémicos, tales como provisión de agua, valor paisajístico, polinización, información biogenética, recreación, mantención de usos tradicionales, mitigación de efectos negativos de catástrofes, como también de prácticas o valores socioculturales asociados al medio natural o al medio creado por el hombre.
La creación de este derecho es acordada libremente por las partes pero, una vez constituido, los efectos se mantendrán incluso a perpetuidad si así es acordado, con independencia de los cambios en el dominio de la propiedad en la cual se establece.
De ser utilizado correctamente, este derecho puede hacer posible el establecimiento de diferentes derechos de conservación sobre un mismo inmueble, respecto de distintos atributos, servicios ecosistémicos, procesos o componentes naturales, lo cual, además de generar los procesos sociales antes mencionados, proveerá también una fuente variada de financiamiento a los propietarios y a la conservación.
Cabe agregar que esta herramienta también podría aplicarse a la agricultura, a la actividad forestal y a la acuicultura, pues podrá usarse, por ejemplo, para la conservación de ciertos parámetros de suelo o de agua, entre otros.
Adicionalmente, también podría aplicarse en terrenos urbanos para el establecimiento de áreas verdes, de recreación, huertos urbanos u otros espacios, al no necesitarse ni expropiar o comprar la totalidad del derecho de propiedad sobre los correspondientes inmuebles. En tal sentido, este nuevo derecho real empodera a las personas y a las comunidades para participar y desarrollar prácticas sustentables a todo nivel, incluso en su vida comunitaria o de vecindad.
Todo lo anterior indica que este nuevo derecho real también servirá para contribuir a la consecución de los objetivos de la Convención de Biodiversidad, lo cual es claro al revisar los distintos 'objetivos de Aichi' –los denominados Aichi Targets–. En este contexto, es clave mencionar que este nuevo derecho real facilitará el cumplimiento de los Targets 19 y 20 de Aichi, pues el surgimiento de nuevo conocimiento será esencial no solo para generar mejores prácticas, delinear nuevos bienes ecosistémicos, sino también para que nuestras prácticas sociales tengan al menos una oportunidad de prevenir escenarios catastróficos relativos a la gestión de la biodiversidad y el clima.
Esta nueva ley ha sido fruto de una combinación de múltiples esfuerzos de numerosos parlamentarios y sus asesores, académicos, profesionales y gestores de iniciativas privadas de conservación.
Por nuestra parte, desde el Centro de Derecho de Conservación, nos produce una profunda satisfacción haber aportado con investigaciones seminales que han propuesto este nuevo diseño jurídico institucional y que le han dado sustento teórico, todo lo cual nos han permitido acompañar el proceso desde sus inicios y a través de sus complejos ajustes conceptuales.
Creemos importante decir que estos esfuerzos se han fundado en el entendimiento y convicción de que hoy, más que nunca, es esencial creer en la posibilidad de mejorar nuestros arreglos jurídico-institucionales para adaptarnos a la complejidad creciente de la sociedad contemporánea. En otras palabras, creemos que el desarrollo de instituciones adecuadas es indispensable para aumentar las probabilidades del surgimiento de dinámicas sociales que sean más armoniosas y conducentes a la sustentabilidad de la vida en el planeta.
Fuente: El Mostrador
Ley Nº20.930. El Derecho Real de Conservación
La “Facultad de Conservar”: Un Nuevo Paradigma
Chile, 28 de Junio 2016
Junio de 2016 será recordado como un mes excepcional para la historia no sólo de la legislación de conservación sino también para el derecho civil.
Con la creación del derecho real de conservación, Chile toma liderazgo al establecer una nueva forma de derecho real, un derecho real de carácter activo que se define en torno a la “facultad de conservar”. El establecimiento de esta facultad implica su reconocimiento separado de las facultades clásicas de uso, goce y disposición. Esta facultad puede establecerse no solo sobre un inmueble o parte de él, sino que además sobre los atributos o funciones del patrimonio ambiental de dicho inmueble.
Durante la discusión parlamentaria, particularmente en las comisiones de constitución y medio ambiente del Senado presididas respectivamente por los Senadores Alfonso de Urresti y Antonio Horvath, se hizo posible trascender la figura de las servidumbres de conservación utilizadas en otras jurisdicciones, estableciendo este nuevo derecho real activo que facilita el reconocimiento de la ´nueva riqueza´ que deriva de los ecosistemas y del patrimonio ambiental en general. Variadas consideraciones teóricas analizadas y contribuidas por el Centro de Derecho de Conservación condujeron a la conclusión de que solo adicionando esta nueva ´facultad de conservar´ sería posible facilitar la inclusión de nuevas valoraciones respecto de tangibles e intangibles ambientales, urbanos o rurales.
En este sentido este derecho es una innovación transformadora del Derecho Civil ya que no solamente agrega o delinea una nueva facultad dentro de los derechos reales sino que por su diseño institucional hace más probable la cooperación entre los distintos grupos de interés que pueden concurrir en un mismo espacio para conservar distintos atributos o funciones del medio ambiente. En otras palabras, esto es lo que se puede denominar un derecho reflexivo que hace posible que distintas observaciones sociales concurran en el espacio social y en la relación con los bienes. En esto, como lo observó el Centro de Derecho de Conservación, estaba también en juego un elemento clave para el futuro de la gestión del medio ambiente: el desarrollo de nuevo conocimiento.
No podemos dejar de observar que una innovación de este tipo no ha ocurrido desde tiempos del Derecho Romano y hoy se ha hecho más que necesaria, dado el nuevo conocimiento disponible y dadas las necesidades contemporáneas en materia de conservación del patrimonio ambiental.
En concreto, este nuevo derecho real se orienta a facilitar la conservación en el largo plazo—de la más variada gama de hábitats naturales o de “intangibles” ambientales o servicios ecosistémicos, tales como provisión de agua, valor paisajístico, polinización, información biogenética, recreación, mantención de usos tradicionales, mitigación de efectos negativos de catástrofes, como también de prácticas o valores socio-culturales asociadas al medio natural o al medio creado por el hombre.
La creación de este derecho es acordada libremente por las partes pero una vez constituido, los efectos se mantendrán incluso a perpetuidad si así es acordado, con independencia de los cambios en el dominio de la propiedad en la cual se establece.
De ser utilizado correctamente, este derecho puede hacer posible el establecimiento de diferentes derechos de conservación sobre un mismo inmueble, respecto de distintos atributos, servicios ecosistémicos, procesos o componentes naturales lo cual además de generar los procesos sociales antes mencionados proveerá también una fuente variada de financiamiento a los propietarios y a la conservación.
Cabe agregar que esta herramienta también podría aplicarse a la agricultura, a la actividad forestal y a la acuicultura, pues podrá usarse, por ejemplo, para la conservación de ciertos parámetros de suelo o de agua, entre otros. Adicionalmente también podría aplicarse en terrenos urbanos para el establecimiento de áreas verdes, áreas de recreación, huertos urbanos u otros espacios, al no necesitarse ni expropiar o comprar la totalidad del derecho de propiedad sobre los correspondientes inmuebles. En tal sentido, este nuevo derecho real empodera a las personas y a las comunidades para participar y desarrollar prácticas sustentables a todo nivel, inclusive en su vida comunitaria o de vecindad.
Todo lo anterior también indica que este nuevo derecho real también servirá para contribuir a la consecución de los objetivos de la Convención de Biodiversidad, lo cual es claro al revisar los distintos ´objetivos de Aichi´ –los denominados Aichi Targets-. En este contexto, es clave mencionar que este nuevo derecho real facilitará el cumplimiento de los Targets 19 y 20 de Aichi, pues el surgimiento de nuevo conocimiento será esencial no solo para generar mejores prácticas, delinear nuevos bienes eco-sistémicos, sino también para que nuestras prácticas sociales tengan al menos una oportunidad de prevenir escenarios catastróficos relativos a la gestión de la biodiversidad y el clima.
Esta nueva ley ha sido fruto de una combinación de múltiples esfuerzos de numerosos parlamentarios y sus asesores, académicos, profesionales de conservación, gestores de iniciativas privadas de conservación. Por nuestra parte, en base a nuestra cooperación con el Centro de Derecho de Conservación, nos produce una profunda satisfacción haber aportado con investigaciones seminales que han propuesto este nuevo diseño jurídico institucional y que le han dado sustento teórico, todo lo cual nos han permitido acompañar el proceso desde sus inicios y a través de sus complejos ajustes conceptuales.
Creemos importante decir que estos esfuerzos se han fundado en el entendimiento y convicción de que hoy más que nunca es esencial creer en la posibilidad de mejorar nuestros arreglos jurídico-institucionales para adaptarnos a la complejidad creciente de la sociedad contemporánea. En otras palabras, creemos que el desarrollo de instituciones adecuadas es indispensable para aumentar las probabilidades del surgimiento de dinámicas sociales que sean más armoniosas y conducentes a la sustentabilidad de la vida en el planeta.
Jaime Ubilla Fuenzalida.
Ley Nº20.930. El Derecho Real de Conservación
La “Facultad de Conservar”: Un Nuevo Paradigma
Chile, 28 de Junio 2016
Junio de 2016 será recordado como un mes excepcional para la historia no sólo de la legislación de conservación sino también para el derecho civil.
Con la creación del derecho real de conservación, Chile toma liderazgo al establecer una nueva forma de derecho real, un derecho real de carácter activo que se define en torno a la “facultad de conservar”. El establecimiento de esta facultad implica su reconocimiento separado de las facultades clásicas de uso, goce y disposición. Esta facultad puede establecerse no solo sobre un inmueble o parte de él, sino que además sobre los atributos o funciones del patrimonio ambiental de dicho inmueble.
Durante la discusión parlamentaria, particularmente en las comisiones de constitución y medio ambiente del Senado presididas respectivamente por los Senadores Alfonso de Urresti y Antonio Horvath, se hizo posible trascender la figura de las servidumbres de conservación utilizadas en otras jurisdicciones, estableciendo este nuevo derecho real activo que facilita el reconocimiento de la ´nueva riqueza´ que deriva de los ecosistemas y del patrimonio ambiental en general. Variadas consideraciones teóricas analizadas y contribuidas por el Centro de Derecho de Conservación condujeron a la conclusión de que solo adicionando esta nueva ´facultad de conservar´ sería posible facilitar la inclusión de nuevas valoraciones respecto de tangibles e intangibles ambientales, urbanos o rurales.
En este sentido este derecho es una innovación transformadora del Derecho Civil ya que no solamente agrega o delinea una nueva facultad dentro de los derechos reales sino que por su diseño institucional hace más probable la cooperación entre los distintos grupos de interés que pueden concurrir en un mismo espacio para conservar distintos atributos o funciones del medio ambiente. En otras palabras, esto es lo que se puede denominar un derecho reflexivo que hace posible que distintas observaciones sociales concurran en el espacio social y en la relación con los bienes. En esto, como lo observó el Centro de Derecho de Conservación, estaba también en juego un elemento clave para el futuro de la gestión del medio ambiente: el desarrollo de nuevo conocimiento.
No podemos dejar de observar que una innovación de este tipo no ha ocurrido desde tiempos del Derecho Romano y hoy se ha hecho más que necesaria, dado el nuevo conocimiento disponible y dadas las necesidades contemporáneas en materia de conservación del patrimonio ambiental.
En concreto, este nuevo derecho real se orienta a facilitar la conservación en el largo plazo—de la más variada gama de hábitats naturales o de “intangibles” ambientales o servicios ecosistémicos, tales como provisión de agua, valor paisajístico, polinización, información biogenética, recreación, mantención de usos tradicionales, mitigación de efectos negativos de catástrofes, como también de prácticas o valores socio-culturales asociadas al medio natural o al medio creado por el hombre.
La creación de este derecho es acordada libremente por las partes pero una vez constituido, los efectos se mantendrán incluso a perpetuidad si así es acordado, con independencia de los cambios en el dominio de la propiedad en la cual se establece.
De ser utilizado correctamente, este derecho puede hacer posible el establecimiento de diferentes derechos de conservación sobre un mismo inmueble, respecto de distintos atributos, servicios ecosistémicos, procesos o componentes naturales lo cual además de generar los procesos sociales antes mencionados proveerá también una fuente variada de financiamiento a los propietarios y a la conservación.
Cabe agregar que esta herramienta también podría aplicarse a la agricultura, a la actividad forestal y a la acuicultura, pues podrá usarse, por ejemplo, para la conservación de ciertos parámetros de suelo o de agua, entre otros. Adicionalmente también podría aplicarse en terrenos urbanos para el establecimiento de áreas verdes, áreas de recreación, huertos urbanos u otros espacios, al no necesitarse ni expropiar o comprar la totalidad del derecho de propiedad sobre los correspondientes inmuebles. En tal sentido, este nuevo derecho real empodera a las personas y a las comunidades para participar y desarrollar prácticas sustentables a todo nivel, inclusive en su vida comunitaria o de vecindad.
Todo lo anterior también indica que este nuevo derecho real también servirá para contribuir a la consecución de los objetivos de la Convención de Biodiversidad, lo cual es claro al revisar los distintos ´objetivos de Aichi´ –los denominados Aichi Targets-. En este contexto, es clave mencionar que este nuevo derecho real facilitará el cumplimiento de los Targets 19 y 20 de Aichi, pues el surgimiento de nuevo conocimiento será esencial no solo para generar mejores prácticas, delinear nuevos bienes eco-sistémicos, sino también para que nuestras prácticas sociales tengan al menos una oportunidad de prevenir escenarios catastróficos relativos a la gestión de la biodiversidad y el clima.
Esta nueva ley ha sido fruto de una combinación de múltiples esfuerzos de numerosos parlamentarios y sus asesores, académicos, profesionales de conservación, gestores de iniciativas privadas de conservación. Por nuestra parte, en base a nuestra cooperación con el Centro de Derecho de Conservación, nos produce una profunda satisfacción haber aportado con investigaciones seminales que han propuesto este nuevo diseño jurídico institucional y que le han dado sustento teórico, todo lo cual nos han permitido acompañar el proceso desde sus inicios y a través de sus complejos ajustes conceptuales.
Creemos importante decir que estos esfuerzos se han fundado en el entendimiento y convicción de que hoy más que nunca es esencial creer en la posibilidad de mejorar nuestros arreglos jurídico-institucionales para adaptarnos a la complejidad creciente de la sociedad contemporánea. En otras palabras, creemos que el desarrollo de instituciones adecuadas es indispensable para aumentar las probabilidades del surgimiento de dinámicas sociales que sean más armoniosas y conducentes a la sustentabilidad de la vida en el planeta.
Jaime Ubilla Fuenzalida.
The Application of the Company Law regarding the Corporate Resolution
On April 12, 2016, the Supreme People’s Court issued the Provisions of the Supreme People’s Court on Issues Relating to Application of Company Law of the People’s Republic of China (IV) (Draft for Public Comments) (“Provisions”).
The Provisions mainly focus on the following contents:
1. The validity of the board of shareholders' meeting resolution, or the board of directors’ meeting resolution (“Resolution”);
2. The protection of the shareholders’ right to know;
3. Shareholders’ right to request the profit distribution;
4. The preemptive rights when the shares are transferred;
5. Cases on direct litigation and shareholder representative litigation.
The Provisions include 36 clauses covering five parts mentioned above. Among others, twelve clauses relating to the Resolution will be discussed hereof, which shall be regarded as the core of the Corporate Governance.
1. Scope of the Plaintiff in a Declaratory Litigation regarding the Invalidation of the Resolution
The litigation regarding the invalidation of a Resolution (“Litigation”) belongs to a declaratory litigation. Theoretically, any party who has direct rights/interest over the Resolution could initiate such Litigation. However, the current applicable Company Law of the People’s Republic of China (“Company Law”) doesn’t make this point clear.
Subject to Article 1 of the Provisions, a shareholder, director or supervisor of a company, a senior executive, an employee or creditors of a company, who have the direct interest over the Resolution could initiate the Litigation based on the regulation in Article 22 of the Company Law.
However, considering that the Resolution is the internal decision of the company, in order for creditors to initiate such Litigation, we believe that Article 1 will apply to the creditor under one potential condition that the Resolution has already been executed as a company’s action which has affected the creditors’ interest.
2. Declaratory Litigation regarding Absence of a Resolution and Failure to Form a Valid Resolution
2.1 Absence of a Resolution
Subject to Article 4 thereof, where a plaintiff specified in Article 1 of the Provisions has the evidence to prove any of the following facts and requests the court to confirm the absence of the Resolution, such request shall be supported by the court:
a. The company fails to hold any board of shareholders' meeting, or board of directors’ meeting (“Meeting”) subject to the Company Law; and
b. The company has held a Meeting but does not arrange the vote for the Resolution.
2.2 Failure to Form a Valid Resolution
Subject to Article 5 thereof, where the company has held a Meeting, but the plaintiff specified in Article 1 of the Provisions has the evidence to prove any of the following facts and requests the court to confirm the failure to form a valid Resolution, such request shall be supported by the court:
a. Quorum or voting right held by shareholders fails to be in compliance with the articles of association of the company;
b. Affirmative votes for the Resolution fail to be in compliance with the Company Law or the articles of association of the company;
c. Certain signatures on the Resolution are forged and not recognized by the shareholders or directors whose signatures are forged;
d. Contents of the Resolution are beyond the authority of board of shareholders or board of directors.
For Fact c) mentioned above, there is another official opinion among the legislators that certain signatures on the Resolution are forged and not recognized by the shareholders or directors whose signatures are forged, and meanwhile, the number of affirmative votes after deducting the forged ones fails to be in compliance with Company Law or the articles of association of the company.
Theoretically, we believe that the latter opinion is more proper than the former one because the Resolution is an internal document related to Corporate Governance. Therefore, the judicial intervention regarding the Resolution shall be limited. After erasing the forged signatures, if the Resolution could still be passed, it shall be valid. Otherwise, it would ultimately appear as a punishment and as an excessive interference to the company´s autonomy.
3. Cause of Invalidation of the Resolution
Subject to Article 6 thereof, the Resolution shall be deemed invalid under any of the following circumstances:
a. Certain shareholders abuse their shareholders' rights to pass the Resolution, which causes damages to the company or other shareholders;
b. The Resolution allows the excessive distribution of profits of the company or major improper affiliated transactions, which causes damages to the creditors of the company; and
c. Other circumstances in which the contents of the Resolution violate compulsory provisions specified in Chinese laws and administrative regulations.
We believe that such regulation will better prevent the majority shareholder or the actual controlling party of the company from abusing their powers to control the company and cause damages to the minority shareholders or creditors of the company.
4. Cause of Revocation of the Resolution
Subject to Article 22 of the Company Law, where the “convening procedures” and “voting method” of the Meeting violate the provisions of Chinese laws and administrative regulations or the articles of association of the company, the shareholders may apply to the court for the revocation of the Resolution made during such Meeting. However, the definition of the “convening procedures” and “voting method” remains obscure.
Article 7 of the Provisions clarifies such ambiguous description of "convening procedures" and "voting methods" in Article 22 of the Company Law as follows:
a. A notice of the company’s Meeting;
b. Shareholding registration;
c. Determination of proposal and agenda of the Meeting;
d. Chairing, voting, counting, announcement of voting results;
e. Resolution formation, Meeting Minutes and the signing matter.
Such clarification will definitely provide a clear guidance for the company to improve the rules of procedure in order to facilitate the Meeting and make it more efficient.
5. Preservation of Conduct regarding Prohibiting the Implementation of the Resolution
Subject to Article 10 of the Provisions, where the implementation of the Resolution cannot resume the original status, or will cause irreparable damages to the legitimate rights and interests of involved parties or interested parties, the implementation of the relevant Resolution may be prohibited for the implementation as applied by the plaintiff.
In order to take measures on the preservation of conduct as specified in the paragraph mentioned above, the court may order the plaintiff to provide corresponding guarantee as applied by the company or ex officio. The implementation of the Resolution shall be prohibited if the plaintiff has provided such guarantee.
After investigation, where the court holds that the plaintiff's claim is filed in order to maliciously intervene with or defer the implementation of the Resolution, the claim shall be rejected.
This clause clearly shows the clear tendency to protect the benefit of the minority shareholders of the company and other relevant third parties, in particular, the creditors’ legitimate interest.
Comments:
Overall, the Provisions, to a large extent, clarify the judicial application of the principles and rules regarding corporate Resolution(s) specified in the Company Law, providing necessary legal basis for the corresponding judicial assessment.
However, there still remain unclear issues in the Provisions. Some definitions are still ambiguous. For instance, regarding Article 6 of the Provisions (Part 3 hereof), what is the standard of “excessive distribution of profits” and “major improper affiliated transactions”? Which circumstances would cause hazard to the creditors of the company?
It is suggested that the legislator shall further clarify those queries. On one hand, it will be easier for the shareholders or creditors to balance the cost to initiate the corresponding litigation. On the other hand, it will prevent the shareholders or creditors from obstructing the execution of the corresponding Resolution through lawsuit abuse.
1 Article 22 (1) of the Company Law: A resolution passed by the board of shareholders or a shareholders' meeting or the board of directors which violates the provisions of laws and administrative regulations shall be void.
Analyses on Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Property Law of the PRC (I)
The Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Property Law of the PRC (I) (the “Interpretation”) was promulgated on February 22, 2016, and came into effect on March 1, 2016.
1. Registration of Immovable Property and Confirmation of the Ownership of Property Rights
1.1 The Filing of Immovable Property Disputes
After the Property Law came into force on October 1 2007, many judges held the opinion that the records in the immovable register (the “Register”) is the only basis to determine the ownership of immovable property. Therefore, if disputes arise due to the legally registered immovable property, parties concerned shall firstly apply for cancellation or alteration registration. Subject to the PRC Administrative Law, the registration of immovable property is an administrative act. As a result, parties concerned shall firstly request to cancel or alter the controversial registration through the administrative remedy, which makes the legal measure inefficient.
In order to improve this situation, the Interpretation formulates that the civil actions brought by the parties concerned for disputes due to the ownership of immoveable property right, or due to the basis of registration of immovable property such as sale, donation or mortgage, shall be accepted by the court in accordance with the law, except that the parties concerned have applied for the administrative proceedings to solve all the aforesaid civil disputes and the court has heard the disputes together.
1.2 The Confirmation of the Ownership of the Controversial Property Rights
Subject to Article 2 of the Interpretation, if the parties concerned have the evidence to prove that the Register does not match the real status and they are the true owners of these immovable property, such requests for confirmation of their property rights shall be supported.
This provision has clearly clarified the principle to determine the ownership of the immovable property. Namely, when dealing with such confirmation of property rights, the judges shall investigate and consider the substantial element instead of prima facie evidence.
1.3 The Legal Effect of Prior Notice Registration
Comparing to the Property Law, Article 4 of the Interpretation further formulates the protection measures for creditors regarding the prior notice registration.
Among others, the key measure is that without the consent of the applicant of prior notice registration, the transfer of immovable property or the establishment of other property rights such as construction land use right, easement or mortgage, shall be regarded as invalid.
2. The Judicial Protection of the Preemptive Right of the Co-owner by Shares
2.1 The Exception of Exercising the Preemptive Right
Subject to Article 9 and Article 13 of the Interpretation, if one co-owner by shares intends to transfer his shares, the other co-owner(s) could not exercise the preemptive right to purchase those shares under the following circumstances, unless it is otherwise agreed by the co-owners by shares:
a. Changes of holders of co-owned shares due to inheritance, bequests, etc.;
b. Transfer of co-owned shares between the co-owners by shares instead of the transfer to the external party.
2.2 The Protection of the Preemptive Right
In order to better protect the preemptive right, Article 11 of the Interpretation clearly stipulates the specific period for exercising the preemptive right.
The period for exercising preemptive right to purchase the shares shall comply with the agreement between co-owners by shares; in the absence of such agreement or if the agreement is not explicit, it shall be determined according to the following rules:
a. If the period for exercising such right is stated in the notice of the assignor to the other co-owners by shares with equal conditions, such period shall prevail;
b. If the period for exercising such right is not stated in the notice, or the period stated is less than 15 days after the notice is served, 15 days shall apply;
c. If the assignor fails to issue a notice, it shall be 15 days as of when the other co-owners by shares know or should know the same conditions finally determined; and
d. If the assignor fails to issue a notice, and cannot confirm whether the other co-owners by shares know or should know the same conditions finally determined, it shall apply to six months after the date of transfer of ownership of co-owned shares.
2.3 Definition of “Equal Conditions”
Subject to Property Law, a co-owner by shares may transfer its share over the jointly owned immovable or movable property to external parties, and the other co-owners by shares shall have the pre-emptive right to purchase those shares under equal conditions. However, there is no provision thereof stipulating explicitly the definition of equal conditions in the Property Law.
According to Article 10 of the Interpretation, the term of "equal conditions" shall be determined upon comprehensive consideration of factors such as transfer price, payment method and duration of the co-owned shares.
Meanwhile, Article 12 (2) also formulates that if the other co-owners request substantive changes such as decrease of transfer price, increase of the burden of the assignor, such request shall not be supported by the court.
2.4 The Principle of Proportionality under the Concurrence of Preemptive Right
According to Article 14 of the Interpretation, if two or more co-owners by shares requesting to exercise their preemptive rights to purchase the shares fail to reach an agreement after the negotiation but continue to request to exercise their preemptive rights based on their respective proportion of shares for the share transfer, such request shall be supported by the court.
3. Bona Fide Purchase
3.1 The Identification of Bona Fide Purchaser
Subject to Article 15 of the Interpretation, when being assigned immovable property or moveable property, if the assignee does not know that the assignor has no right to dispose of such property or is in gross negligence, the assignee shall be regarded as the bona fide purchaser.
Therefore, the application precondition of bona fide depends on whether the assignor has the authorized disposition right, no matter the transfer contract is valid or not.
3.2 How to Identify the Assignee does not Constitute Bona Fide
a. For Immovable Property
According to Article 16 of the Interpretation, any of the following circumstances shall be deemed that the assignee of an immovable property knows that the assignor has no authorized disposition right:
a) There is the valid dissidence registration in the Register;
b) It fails to obtain the consent from the right holder of prior notice registration within the valid period of such registration;
c) Relevant matters have been recorded in the Register that judicial institutions or administrative institutions have ruled or decided to seize or restrict immoveable property in other forms in accordance with the law;
d) The assignee knows the subject of rights recorded in the Register is wrong; and
e) The assignee knows that other parties have enjoyed immovable property right in accordance with the law.
If the real holder of prior notice registration has the evidence to prove that the assignee of the immovable property should know that the assignor has no authorized disposition right, the assignee shall be regarded as guilty of gross negligence.
b. For Movable Property
Subject to Article 17 of the Interpretation, when the assignee receives a moveable property, if the object, place or timing of the transaction is not in conformity with the transaction practice, the assignee shall be regarded as guilty of gross negligence.
c. Reasonable Price
If the transaction price of immovable or movable property is not reasonable, the assignee shall not constitute bona fide.
Subject to Article 19 of the Interpretation, the “reasonable price” shall be justified based on factors such as the nature and amount of the subject matter transferred and payment method with reference to the market price and transaction practice at the transaction place at the time of transfer.
3.3 The Timing to Identify Bona Fide
According to Article 18 of the Interpretation, “the timing to identify bona fide” refers to the time when the transfer of immovable property right is registered in public registry or the moveable property is delivered.
3.4 The Exception of the Application of Bona Fide
Subject to Article 21 of the Interpretation, under any circumstance as follows, the people's courts shall not support the assignee's claim for obtaining the property ownership based on bona fide:
a. The transfer contract is regarded as invalid due to the breach of Article 52 of the Contract Law; and
b. The transfer contract is cancelled due to statutory circumstances such as fraud, coercion or taking advantage of others' difficulties by the assignee.
This provision embodies the value that stipulation would never protect illegal transactions.
Comments:
In order to specify the general provisions of the Property Law and make it clear for the legal practice, the Interpretation formulates 22 articles in total. And these articles cover certain important issues established in the Property Law, including the registration of immovable property, co-ownership by shares and bona fide purchase, etc. Therefore, the Interpretation will provide a more specific guidance for the civil practice of the court for property right related disputes.
[1] In any one of the following situations, a contract shall be identified as invalid:
(1) one party concludes the contract through the use of fraudulent or coercive methods, causing detriment to the interests of the State;
(2) the contract involves a malicious conspiracy which is detrimental to the interests of the State, a collective or a third party;
(3) illegal intentions are concealed beneath an appearance of legality;
(4) there is detriment to social and public interests; or
(5) the mandatory provisions of laws and administrative regulations are violated.
Reforming on Registered Capital Registration System of Foreign Invested Enterprise
On October 28, 2015, the Ministry of Commerce of People’s Republic of China issued the Decision of the Ministry of Commerce on Revising Certain Regulations and Normative Documents (“Decision”), which took effect on the same day. The Decision aims to deepen the reform of foreign investment enterprises (“FIE”) in respect of registered capital registration system and the transformation of government functions, move forward the facilitation of the business registration system, effectively optimize the business environment, and further stimulate the vitality of market.
According to the Decision, the main changes are listed as follows:
1. Modifications regarding the Establishment and Annual Inspection of FIE
The Decision abolishes the requirements and restrictions on the minimum registered capital, the time limit of capital contribution, the percentage of first-time capital contribution, percentage of contribution by cash, and further simplifies the procedure of the establishment and the annual joint inspection, and the following kinds of enterprises shall be applicable:
a. Foreign Investment Joint Stock Companies;
b. Foreign Invested Venture Capital Enterprises; and
c. Foreign-Invested Commercial Enterprises.
2. Merger and Division of FIE
The Decision abolishes the following requirements:
a. Any merger and division of foreign-invested enterprises shall be not allowed until the foreign investors have paid up their capital contribution or provided cooperation conditions pursuant to the provisions of the company's contract and articles of association and actually commenced production and operation; and
b. Any merger or division of the FIE shall submit the capital verification reports to relevant approval authorities.
3. Reinvestment of the FIE
The Decision abolishes the following requirements:
a. Before making investments in China, the FIE shall pay up the registered capital;
b. When the FIE reinvests in China, its accumulated investment shall not exceed 50% of its net assets; and
c. Where the FIE reinvests in any encouraged or permitted sector to establish any new entity, the FIE will not be required to submit the capital verification reports, which demonstrates that the registered capital has been paid up in full amount.
4. Equity Contribution of the FIE
The Decision abolishes the following requirements:
a. The equity shall not be used for the capital contribution under the circumstances that the registered capital of the FIE has not been paid up and the FIE fails to participate or pass the joint annual inspection of the previous year;
b. The total amount of equity contribution by all shareholders of the FIE and other non-monetary contributions shall not exceed 70% of the registered capital of the invested enterprise; and
c. Where the FIE intends to make equity contribution, it shall submit relevant certificate to the approval authority in order to prove it has passed the joint annual inspection.
5. Minimum Registered Capital Reform regarding Several Industries
The Decision abolishes the requirements on the minimum registered capital of the FIEs in the following industries:
a. Lease sector;
b. International freight forwarding sector;
c. Refined oil market;
d. Contract work on outbound construction projects; and
e. Logistics sector.
Comments:
The Decision further loosens the strict requirement on FIEs especially regarding the registered capital registration system, which is consistent with the reform of registered capital registration system for domestic enterprises. In a word, the capital registration system for both FIEs and domestic enterprises are almost unified.
However, the Decision still couldn’t sort out relevant regulations thoroughly. For instance, regarding the investment FIE setup, although the Decision abrogated the requirements on minimum registered capital of USD 30 million, there are still provisions concerning such minimum registered capital exiting in Provisions on the Establishment of Investment Companies by Foreign Investors.
Opinions of the State Council on the Implementation of the Market Access Negative List System
On October 02, 2015, State Council of People’s Republic of China (the "China") released Opinions of the State Council on the Implementation of the Market Access Negative List (the “Negative List”) System (the "Opinions"). The Draft will come into effect as of December 1, 2015 and shall remain in force till December 31, 2017. The Draft, once taken into effect, will affirm the equal basis for all the market entities to invest in the different industries, sectors and businesses not included in the Negative List, which is comprehensively used by other countries to administrate domestic market, administrating state-owned enterprises, non-state-owned enterprises, domestic enterprises and foreign invested enterprises on an equal basis. The implementation of the market access negative list system is a significant change of approach and framework regarding administration of Chinese government from government-led administration to a looser resident self-governance.
1. Background
The world's second-largest economy, which grew 7 percent in the first half from a year earlier, is experiencing its slowest economic expansion during the last 25 years in 2015. Therefore, nowadays, China has made its decision to slacken restrictions on its manufacturing and service sectors as it tries to improve inefficient state-owned firms by adopting market-friendly policies to stave off slowing growth. The concept of the Negative List with respect to foreign investment was introduced to China in bilateral investment treaty negotiations with the United States. The market access negative list system (the “Negative List”) establishes that any administration of the authorities contrary to the national treatment and most favored nation treatment for the foreign investments, shall be clearly included in the Negative List, and the foreign investors will be entitled the same market access right.
2. Overview
a) Classification
Pursuant to Article 6, the Negative List, including both the prohibited access list and the restricted access list, is applicable to the investments, operations and other market access activities of various market entities via initial investment, expansion of investment as well as merger and acquisition, etc.
The Opinion has the clear access requirements for both the prohibited access list and the restricted access list. As for the fields included in the prohibited access list, the entities are prohibited to invest in and the authorities shall not examine or approve the market access or handle the relevant procedure. As for the fields included in the restricted access list, the entities may submit an application for the authorities to decide whether to approve the market access.
Further, as for the fields not included in the Negative List, all the entities may enter the market on an equal basis in accordance with the law.
b) Conditions for Application
Pursuant to Article 7, it clarifies the conditions for determining the prohibition and restriction for operations and other market access activities of various market entities. The authority may utilize the qualification of market entities, shareholding ratio, scope of businesses, status of operation, business mode, regional layout, land development and protection and other relevant administrative measures in accordance with the law, regulations and decisions of the State Council as the market access qualification in some specific fields.
We notice that the Opinion provides a standard to distinguish the prohibited and restricted fields. The national safety, the national layout of major productive powers, development of strategic resources, major public interests will be majorly taken into consideration for the prohibited and restricted field.
c) Major Types of Negative List and Their Application
Pursuant to Article 8, there are two main negative lists, including the market access negative list and the foreign investment negative list. The market access negative list applies to both the domestic and foreign investors and constitutes the uniform requirements of market access for various market entities. Meanwhile, the foreign investment negative list only applies to the investments by foreign investors in China and constitutes the special management measure for market access of foreign investment.
In Article 8, the foreign investment negative list will be formulated with the subject of diplomatic talks concerning foreign investment taken into comprehensive consideration, with the relevant rules to be separately prescribed by the State.
We understand that Article 8 is a reserve of Chinese government for future negotiation with other countries, especially with USA. When the market access negative list applies to the foreign investors, the investments by the foreign investors also has to be ruled a special foreign investment negative list, which means that if some conflicts exist between such two lists, the foreign investment negative list shall apply. In a way, it is a drawback for the market access negative list system and it has not substantially realized the national treatment for all entities.
d) Formulation, Implementation and Adjustment Procedure
Pursuant to Article 10 and 11, the Negative List will be uniformly formulated and announced by the State Council and will follow the principles of carrying out pilot programs and gradual expansion, from December 1, 2015 to December 31, 2017. The negative list system will be launched on a pilot basis in some areas to accumulate experience and gradually improve and the unified nationwide market access negative list system will be formally enforced from 2018.
National Development and Reform Commission and Ministry of Commerce will be authorized by State Council to lead in the establishment of cross-sectorial deliberation and coordination mechanism, which will be responsible for the routine work in implementing the negative list system.
We notice that the Opinion has not provided a clear timeline for implementation of the Negative List and it only provides a general principle of carrying out pilot programs and gradual expansion. We understand that this probably is another element for Chinese government to negotiate with other countries.
e) Conclusion
The Opinion has great significance in releasing the decisive role of the market in allocating resources and further developing the role of government, and in establishing a commercial environment based on the rule of law and building a new open-style economic system. Meanwhile, the final implementation of the Opinion is still subject to some uncertainties regarding the foreign investment negative list and the non-existence of timeline of implementation.
Reply of the Supreme People’s Court on the Request of the Shanghai High People’s Court for Instructions on the Cases Involving the Judicial Review of Arbitration Awards Made by the CIETAC and its Former Sub-Commissions
On July 15, 2015, the Supreme People’s Court has issued the Reply on the Request of the Shanghai High People's Court for Instructions on the Cases Involving the Judicial Review of Arbitration Awards Made by the CIETAC and its Former Sub-Commissions (the "Reply"). The Reply, once taking into effect dated on July 17, 2015, will solve the disputes over the issues regarding the validity of relevant arbitration awards and the right to accept arbitration cases, the jurisdiction over arbitration cases and the enforcement of arbitration awards of several arbitration agencies.
Background
A dispute between the central Beijing commission of the China International Economic and Trade Arbitration Commission ("CIETAC") and its Shanghai sub-commissions and South China sub-commissions has arisen as the two sub-commissions refused to comply with the new arbitration rules issued by CIETAC that took into effect on May 1, 2012. As a result, on August 1, 2012, the central Beijing commission suspended the authority of arbitration to the Shanghai and South China sub-commissions. Correspondingly, the former South China sub-commission changed its name to the South China International Economic and Trade Arbitration Commission (“SCCIETAC”) and the former Shanghai sub-commission changed its name to the Shanghai International Economic and Trade Arbitration Commission (“SHIAC”).
As a result, after names were changed (“Rename Date”), SCCIETAC and SHIAC became independent from CIETAC. However, it also caused several disputes over the issues such as the validity of relevant arbitration awards and the right to accept arbitration cases, etc.
Reply of the Supreme People’s Court
In order to solve the disputes in practice, the Supreme People’s Court confirmed in the reply as follows:
(1) Before the Rename Date, where the parties agree to submit their disputes to "CIETAC South China Sub-Commission" or "CIETAC Shanghai Sub-Commission" for arbitration, SCCIETAC or SHIAC shall have jurisdiction over these arbitration cases. Where any party of the dispute requests the people's court to determine the arbitration agreement to be invalid or applies for the revocation or non-enforcement of the arbitration award on the ground that SCCIETAC or SHIAC has no right to arbitrate, the people's court shall reject such request.
(2) After the Rename Date, where the parties agree to submit their disputes to "CIETAC South China Sub-Commission" or "CIETAC Shanghai Sub-Commission" for arbitration, CIETAC shall have jurisdiction over these arbitration cases. However, if one party applies to SCCIETAC or SHIAC for the arbitration and the respondent raises no objection to the jurisdiction of the SCCIETAC or SHIAC, and after an arbitration award is made, any party of the dispute applies for the revocation or non-enforcement of the arbitration award on the ground that SCCIETAC or SHIAC has no right to arbitrate, the people's court shall reject such application.
(3) After the Reply takes into effect, where the parties sign an arbitration agreement and agree to submit their disputes to "CIETAC South China Sub-Commission" or "CIETAC Shanghai Sub-Commission" for arbitration, CIETAC shall have the jurisdiction over these arbitration cases.
(4) Where the applicant in an arbitration case requests the arbitration committee to decide the jurisdiction over the case, and after the arbitration committee determines that the arbitration agreement is valid and it has jurisdiction over the case, the respondent files a lawsuit with the people's court before the first hearing, applying for confirming the validity of the arbitration agreement, the people's court shall accept the lawsuit to make a judgment. Where the applicant or the arbitration committee claims that the people's court shall not accept the lawsuit filed by the respondent, the people's court shall reject such claim.
(5) Where, before this Reply takes into effect, an arbitration case that shall not be accepted by CIETAC, SCCIETAC or SHIAC according to Article 1 of the Reply has been accepted and the arbitration committee has made the award, such award is effective and binding.
(6) Where, before this Reply takes into effect, CIETAC has accepted the same arbitration case with SCCIETAC or SHIAC, the arbitration committee that first accepted the case shall have jurisdiction over the case.
Comment
The Reply has clarified the queries during the arbitration practice among different arbitration commissions. As a result, the contradiction of jurisdiction over cases among arbitration commissions is solved to some extent and the status of SCCIETAC and SHIAC has been confirmed in a formal way.
The Measures for Administration of Individual Income Tax on Income Derived from Equity Transfer (for Trial Implementation)
On December 7, 2014, the State Administration of Taxation has issued the Measures for Administration of Individual Income Tax on Income Derived from Equity Transfer (for Trial Implementation) (the "Measures"). The Measures, once taking into effect on January 1, 2015, will abolish the Notice of the State Administration of Taxation on Strengthening Administration of the Collection of Individual Income Tax on Income Derived from Equity Transfer (Guo Shui Han [2009] No. 285), and the Announcement of the State Administration of Taxation on Issues Relating to Determining Verifying the Taxation Basis for Individual Income Tax on Income Derived from Equity Transfer (Announcement of the State Administration of Taxation [2010] No. 27) (the “Announcement”).
The Measures have specified considerable rules regarding individual income tax on income derived from equity transfer which are listed as follows, among others:
1. Overview
1.1 Proper Taxpayer
Pursuant to Article 2 and Article 5 of the Measures, individual shareholders who invest equities or shares into enterprises or organizations established within the territory of China, excluding sole proprietorships and partnerships, shall be regarded as the proper taxpayer. During transfer transactions, the equity transferor is regarded as the tax payer and the transferee is deemed as the withholding agent.
1.2 Competent Tax Authorities
Pursuant to Article 19 of the Measures, competent tax authorities for the individual income tax (“IIT”) on the income derived from equity transfer by individuals are local tax authorities where the invested enterprise is located.
1.3 Circumstances of Equity Transfer (Scope of Tax Collection)
Pursuant to Article 3 of the Measures, the equity transfer means the individual transfers his/her equity to other individuals or legal entities, specifically includes:
a. The sale of equity;
b. The repurchase of equity by enterprises;
c. When the issuer initiates the public offering of shares, shareholders of the invested enterprise also sell their shares to the investors by way of the public offering;
d. The equity is compulsorily transferred by judicial or administrative authorities;
e. Equity investment or any non-monetary transactions;
f. The equity is used for clearing off debts;
g. Other equity transfer conducts.
1.4 Calculation of Taxable Income of Equity Transfer
Pursuant to Article 4 of the Measures, the IIT shall be calculated and paid in the name of "asset transfer income" based on the taxable income during the equity transfer. The taxable income refers to the balance of "equity transfer income" minus "original value of equity and reasonable cost". "Reasonable cost" refers to relevant taxes paid to competent tax authorities for the equity transfer.
2. Identification of Original Value and Equity Transfer Income
2.1 Original Value
Pursuant to Article 15 of the Measures, the original value of the transferred equity shall be identified through the following methods:
|
Situation |
Calculation Method of Original Equity Value |
|
Actual payment plus reasonable taxes directly related to the equity transfer; |
|
The non-monetary asset price at the time of investment recognized or verified by the tax authorities plus reasonable taxes directly related to the equity transfer; |
|
Reasonable taxes directly related to the equity transfer and the original value of equity of the previous holders; |
|
The added value plus related taxes shall determine the original value of the equity of the newly added share capital; |
|
The competent tax authorities shall reasonably determine the original value of equity under the principle of "avoiding double collection of individual income tax". |
2.2 Equity Transfer Income
Pursuant to Article 7, Article 8 and Article 9 of the Measures, the "equity transfer income" refers to the economic income acquired in such forms as cash, physicals and securities for equity transfers, which also includes liquidated damages, compensation, as well as other payments, assets, and interests under other items. Moreover, the subsequent income acquired by a tax payer under a contract after meeting the agreed terms shall also be regarded as the equity transfer income.
3. Income Determined by Competent Tax Authorities
3.1 Pursuant to Article 11 of the Measures, competent tax authorities may determine the equity transfer income under any of the following circumstances:
a. The declared equity transfer income is obviously low and unjustified;
b. Relevant taxes have not been declared before the deadline and such taxes are still not declared after tax authorities have ordered to declare taxes within a limited period;
c. The transferor fails to or refuses to provide information of the equity transfer income;
d. Other circumstances under which the equity transfer income shall be determined.
3.2 Pursuant to Article 14 of the Measures, competent tax authorities shall adopt the following methods in turn to determine the equity transfer income:
a. Confirmation by Net Asset
b. The method of analogue
c. Other reasonable methods
3.3 Pursuant to Article 12 and Article 13 of the Measures, the circumstance that “the equity transfer income is obviously low” is defined in order to prevent the tax avoidance during the equity transfer, which is clarified as follows:.
a. Equity Transfer Income is Obviously Low Without Reasonable Causes (Article 12)
i. The declared equity transfer income is lower than the net asset share corresponding to the equity, amongst which, if the invested enterprise has land use rights, buildings, unsold real properties of real estate companies, intellectual property, right of prospecting, mining rights, equity and other assets, the declared equity transfer income is lower than the fair value of the net asset fair value share corresponding to the equity;
ii. The declared equity transfer income is lower than the initial investment cost or lower than the price and related taxes paid for the acquisition of the shares;
iii. The declared equity transfer income is lower than the equity transfer income of the same shareholders or other shareholders of the same company under the same or similar conditions;
iv. The declared equity transfer income is lower than the equity transfer income of enterprises in the similar industry under the same or similar conditions;
v. Unjustified transfer of equity or shares without consideration;
vi. Other circumstances determined by competent tax authorities.
b. Equity Transfer Income is Obviously Low With Reasonable Causes (Article 13)
i. Valid documents can be provided to prove that invested enterprises transfers the equity at a low price because the corporate production and operation are significantly affected due to national policy adjustments;
ii. Inheritance, or equity transfer to spouse, parents, children, grandparents, grandchildren, brothers and sisters who can provide valid legal proof of the identity and relationship, or equity transfer to financial supporters of the transferors who undertake direct duties of the financial support;
iii. Internal transfer of equity held by enterprises' employees, which cannot be transferred externally and have relevant documents that can fully prove the reasonability and the authenticity of the transfer price;
iv. Any other reasonable circumstances where the transferors and transferees can provide valid certificates to prove the reasonability.
4 Timeline of IIT Payment and Submission of Documents
4.1 Timeline of Tax Payment
Pursuant to Article 6 of the Measures, the withholding agent/transferee shall report the relevant information to competent tax authorities within five working days after the relevant equity transfer agreement is signed.
4.2 Submission of Documents
Pursuant to Article 21 of the Measures, the following documents shall be submitted competent tax authorities for the tax payment (withholding) declaration:
a. The equity transfer contract (agreement);
b. The identification certificates of transferors and transferees of the equity transfer;
c. Asset value appraisal reports on net assets or land/real properties issued by qualified agencies if required according to relevant provisions;
d. Documents proving that the tax calculation basis is obviously low for certain reasonable causes;
e. Other documents required by competent tax authorities.
Comments
In general, compared to the Announcement, the Measures provide a more comprehensive guideline for the Chinese tax authority to supervise the payment of IIT during the equity transfer cases in respect of the following critical elements:
1) Clarify the scope of equity share, equity share income and tax payment;
2) Identify the equity transfer income and incorporate the subsequent income acquired by a tax payer under a contract after meeting the agreed terms as the equity transfer income;
3) Specify the circumstance “the equity transfer income is obviously low” and the exception;
4) Establish methods for competent tax authorities to determine the equity transfer income;
Detailed and clear rules regulated in the Measures, especially the elements mentioned above, will definitely facilitate the supervision of IIT payment by the Chinese tax authority in order to prevent the tax avoidance of individuals during the equity transfer transactions.
However, the Measures still have certain unclear sectors which need to be improved regarding the IIT derived from the equity transfer as follows:
1) During non-monetary transactions such as the investment with equity as one of circumstances of equity transfer, in general, there is no cash income incurred. As a result, it will be difficult to determine the income since the anticipated revenue will normally be different from the actual income. In practice, under certain circumstances, there still exist difficulties to determine the income.
2) With regard to the value adjustment mechanism (“VAM”), although the Measures regulates the subsequent income acquired by a tax payer under a contract after meeting the agreed terms as the equity transfer income in Article 9, which is one type of VAM, other types of VAM is still not taken into account. Therefore, the IIT involving other types of VAM needs to be further clarified.
3) With regard to “reasonability” in the item 4 of Article 13, it is still unclear what situations the “reasonability” shall prevail.
Therefore, no matter the transferor, the transferee or the invested enterprises shall keep a close eye on the Measures and the following improvements or adjustments.