- China’s STA issued new guidance clarifying the “reasonable commercial purpose” test for SME tax preferences, targeting artificial revenue splitting.
- The guidance introduces a three-part test (motive, business substance, arm’s length pricing) and positive/negative lists to assess legitimacy.
- Legitimate restructurings include specialized management, risk segregation, regional expansion, asset carve-outs, and succession planning.
- Red-flag practices include entity splitting (multiple shell companies sharing resources) and contract splitting (dividing contracts to stay under tax thresholds).
- The STA signals stricter enforcement, impacting businesses using group structures to access SME tax benefits.
Source: china-briefing.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
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