STA Interpretation: Administrative Measures for Non-Resident Taxpayers Claiming Treaty Benefits

关于《国家税务总局关于发布〈非居民纳税人享受协定待遇管理办法〉的公告》的解读

Source (Chinese): STA Policy Database — 政策解读 (STA General Office, October 14, 2019)

English translation: Independent translation. Not an official government translation.

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Recently, the State Taxation Administration published the Administrative Measures for Non-Resident Taxpayers Claiming Treaty Benefits (the "New Measures"), revising the previous Administrative Measures for Non-Resident Taxpayers Claiming Tax Treaty Benefits (issued via STA Announcement [2015] No. 60, amended by STA Announcement [2018] No. 31, the "Original Measures"). The revision changes the non-resident taxpayer treaty benefit documentation from submission at the time of filing to retention for inspection. The interpretation is as follows:

Q1: What is the background for the revision?

Answer: In 2009, the STA comprehensively established a primarily approval-based procedure for non-residents to claim treaty benefits. In 2015, in line with the "streamlining administration, delegating power, and improving regulation and services" reform and business environment optimization requirements, the STA issued the Original Measures, abolishing the approval requirement for non-residents to claim treaty benefits. The Original Measures provided that non-resident taxpayers would self-apply for treaty benefits at the time of filing while submitting the required materials to the tax authority and accepting subsequent management by the tax authority.

To further deepen the reform and optimize the tax business environment, and to increase the convenience for non-resident taxpayers in claiming treaty benefits, the STA revised the Original Measures, changing the documentation requirement from submission at the time of filing to retention for inspection.

Q2: What are the main contents of the revision?

Answer:

1. Changing the non-resident taxpayer treaty benefit documentation from submission at the time of filing to retention for inspection;

2. Substantially simplifying the forms that non-resident taxpayers are required to fill out;

3. Clarifying the respective responsibilities of non-resident taxpayers and withholding agents.

Q3: After the revision, how should non-resident taxpayers claim treaty benefits?

Answer: The revised procedure for non-resident taxpayers to claim treaty benefits adopts the approach of "self-assessment, claim at the time of filing, relevant materials retained for inspection." Specifically:

For non-resident taxpayers who file on their own, those who self-assess that they meet the conditions for claiming treaty benefits and wish to claim such benefits shall submit the Non-Resident Taxpayer Treaty Benefit Information Report Form at the time of filing and shall collect and retain the relevant materials for inspection in accordance with Article 7 of the Measures.

In cases of withholding at source and designated withholding, non-resident taxpayers who self-assess that they meet the conditions for claiming treaty benefits and wish to claim such benefits shall truthfully complete the Non-Resident Taxpayer Treaty Benefit Information Report Form, proactively submit it to the withholding agent, and collect and retain the relevant materials for inspection in accordance with Article 7 of the Measures.

It should be noted that regardless of whether the filing is made by the taxpayer or the withholding agent, it is the non-resident taxpayer who is responsible for collecting and retaining the relevant materials for inspection.

Q4: How has the reporting form for non-resident taxpayers been simplified?

Answer: The Original Measures prescribed 10 forms in total, with non-resident taxpayers filling out two of them based on the specific treaty benefits being claimed. The two forms were detailed and could help non-resident taxpayers determine whether they met the conditions for claiming treaty benefits, but they also created a certain filing burden. To reduce the filing burden on non-resident taxpayers, this revision substantially simplifies the forms. The simplified form is only 1 form with less content and easier to fill out. Non-resident taxpayers only need to provide basic information such as name and contact details, and make a declaration.

Non-resident taxpayers may, if needed, continue to refer to the forms prescribed in the Original Measures to determine whether they meet the conditions for claiming treaty benefits.

Q5: How should the declaration that non-resident taxpayers are required to make be understood?

Answer: The declaration that non-resident taxpayers are required to make covers the following four aspects:

First, tax resident status -- i.e., that the taxpayer is a tax resident of the treaty partner under the laws and regulations of the treaty partner and the residence article of the tax treaty. If the taxpayer is a tax resident of the treaty partner under the latter's laws and regulations but is a Chinese tax resident under the residence article of the tax treaty, the conditions for claiming treaty benefits are not met.

Second, the principal purpose of the relevant arrangements and transactions is not to obtain tax treaty benefits. Under the principal purpose test clause of the tax treaty or the general anti-avoidance rules under domestic tax law, treaty benefits cannot be claimed if the principal purpose of the relevant arrangements and transactions is to obtain tax treaty benefits.

Third, self-assessment and acceptance of corresponding legal liability. If a non-resident taxpayer makes an incorrect assessment and claims treaty benefits without meeting the conditions, the taxpayer shall bear the corresponding legal liability.

Fourth, collection and retention of relevant materials for inspection in accordance with regulations and acceptance of subsequent management by the tax authority. Where a non-resident taxpayer fails to provide the retained materials and other supplementary materials as required by the tax authority, or evades, refuses, or obstructs the tax authority's subsequent investigation, and the competent tax authority is unable to verify whether the conditions for claiming treaty benefits are met, the taxpayer shall be deemed not to meet such conditions.

Q6: What should the withholding agent do upon receiving the Non-Resident Taxpayer Treaty Benefit Information Report Form?

Answer: Upon receiving the Non-Resident Taxpayer Treaty Benefit Information Report Form, the withholding agent shall confirm that the information filled in by the non-resident taxpayer is complete, then withhold tax in accordance with domestic tax law and the treaty provisions, and truthfully submit the Non-Resident Taxpayer Treaty Benefit Information Report Form as an attachment to the withholding declaration to the competent tax authority.

Q7: What should the withholding agent do if it has not received the Non-Resident Taxpayer Treaty Benefit Information Report Form?

Answer: Where the non-resident taxpayer has not proactively submitted the Non-Resident Taxpayer Treaty Benefit Information Report Form to the withholding agent, or the information filled in is incomplete, the withholding agent shall withhold tax in accordance with domestic tax law.

Q8: How are the responsibilities of non-resident taxpayers and withholding agents divided?

Answer: The New Measures further clarify the respective responsibilities of non-resident taxpayers and withholding agents.

Non-resident taxpayers shall self-assess whether they meet the conditions for claiming treaty benefits. Those who meet the conditions and wish to claim treaty benefits shall proactively submit the report form to the withholding agent to request treaty benefit treatment. If the non-resident taxpayer makes an incorrect assessment and claims treaty benefits without meeting the conditions, resulting in underpayment or non-payment of tax, the taxpayer shall bear the corresponding legal liability.

The withholding agent shall, upon receiving the report form, confirm that the information filled in by the non-resident taxpayer is complete, and then make the withholding declaration in accordance with the treaty benefits requested by the non-resident taxpayer. If the withholding agent fails to make the withholding declaration as required by Article 6 of the Measures, or fails to provide the relevant materials as required by Article 13 of the Measures, and a situation arises where a non-resident taxpayer that does not meet the conditions claims treaty benefits and underpays or does not pay tax, the withholding agent shall bear the corresponding legal liability.

Q9: Why has the definition of "non-resident taxpayer" changed?

Answer: The Original Measures provided: "A non-resident taxpayer refers to a taxpayer who, under domestic tax law or a tax treaty, is not a Chinese tax resident (including non-resident enterprises and non-resident individuals)." The New Measures provide: "A non-resident taxpayer refers to a taxpayer who, under the residence article of a tax treaty, should be a tax resident of the treaty partner."

The revised definition of non-resident taxpayer is more precise. The entity that claims treaty benefits is a taxpayer who is a tax resident of the treaty partner under the residence article of the tax treaty. This includes two categories: one is taxpayers who are solely tax residents of the treaty partner; the other is taxpayers who are tax residents of the treaty partner but are also Chinese tax residents under China's domestic tax law, yet should be treated as tax residents of the treaty partner under the residence article of the tax treaty.

Q10: What does "documentation that can prove the identity as specified in the treaty" refer to?

Answer: For taxpayers claiming benefits under the international transportation article of a tax treaty or an international transportation agreement, documentation that can prove the identity as specified in the treaty may be used in lieu of a tax residency certificate. For example, some tax treaties' international transportation articles provide: "Profits derived by an enterprise from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated." An enterprise claiming treaty benefits under such a provision may provide a certificate of the place of effective management issued by the competent tax authority of the treaty partner in lieu of a tax residency certificate.

Q11: What does "relevant materials proving the status of 'beneficial owner'" refer to?

Answer: For taxpayers claiming treaty benefits under the dividends, interest, or royalties articles, relevant materials proving the status of "beneficial owner" shall be retained. The relevant materials proving the status of "beneficial owner" refer to the materials specified in Articles 7 and 8 of the STA Announcement on Issues Concerning "Beneficial Owner" in Tax Treaties (STA Announcement [2018] No. 9).

Q12: What is the "principal purpose test" clause in tax treaties?

Answer: The "principal purpose test" clause in tax treaties refers to a clause in a tax treaty containing the following or similar language: Notwithstanding the other provisions of this Agreement, a benefit under this Agreement shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Agreement.