Staff secondments and taxable presence for nonresident companies in China

On April 19, 2013, the State Administration of Taxation (SAT) released the “Announcement on Issues Concerning Corporate Income Tax on Services Provided by Non-Resident Enterprises through Staff Secondments to China”1 (“Announcement 19”) to provide practical guidelines for the determination of the nature of secondment by foreign entities. Before the release of Announcement 19, local entities (“Host Entity”) and foreign entities (“Home Entity”) disagreed with local tax bureaus on whether the foreign entity constitutes a taxable business presence in China. When the Host Entity has to reimburse the secondment expenses incurred by the Home Entity, a tax clearance certifi cate has to be obtained for the remittance. If a tax authority assumes the presence of a permanent establishment (PE) of the Home Entity, the Host Entity will not be able to obtain the tax clearance certifi cates for remitting the reimbursement. Announcement 19 provides comprehensive rules in determining the existence of a PE and shall infl uence multi-national corporations to rearrange their secondment packages.