In the double taxation avoidance agreement signed by the government of the People's Republic of China, the identification of the "beneficial owner" in the dividend, interest and royalty provisions of the tax agreement plays a significant role in whether the enterprise can enjoy the agreement treatment. In order to clarify the conditions and criteria of "beneficial owner", Kaizen summarized the following policies for customers' reference.

Concept of “beneficial owner”

"Beneficial owner" refers to the person who has ownership and control over the income or power or property derived from the income.

What factors are not conducive to the determination of the status of a "beneficial owner" of a resident of a contracting party who needs to be treated under a tax treaty?

（1）The applicant has the obligation to pay more than 50% of the income to a resident of a third country (region) within 12 months of receipt of the income, "obligation" includes agreed obligations and cases where no agreed obligations have formed the fact of payment.
（2）The business activities engaged in by the applicant do not constitute substantive business activities. Substantive business activities include substantive manufacturing, distribution, management, and other activities. Whether the business activities engaged in by the applicant are substantive should be judged according to the functions they actually perform and the risks they bear.
Substantial investment holding management activities engaged by the applicant may constitute substantial business activities; If the applicant is engaged in investment holding management activities that do not constitute substantive business activities and is engaged in other business activities at the same time, if the other business activities are not significant enough, it does not constitute substantive business activities.
（3）The country (region) of the other Contracting party does not tax or exempt the relevant income, or taxes it but the effective tax rate is very low.
（4）In addition to the loan contract on which the interest is generated and paid, there are other loan or deposit contracts between the creditor and the third party which are similar in terms of amount, interest rate and time of execution.
（5）In addition to the contract for the transfer of the right to use copyright, patent, technology, etc. on which the royalty is generated and paid, there is a contract for the transfer of the right to use or ownership of the copyright, patent, technology, etc. between the applicant and a third party.

If the applicant's income from China is dividends, although the applicant does not meet the "beneficial owner" condition, but the person who directly or indirectly holds 100% of the applicant's shares meets the "beneficial owner" condition, what conditions need to be met to be recognized as a "beneficial owner" status?

(1) The above qualified "beneficial owner" is a resident of the applicant's resident country (region);
(2) Although the above person who meets the conditions of "beneficial owner" is not a resident of the resident country (region) to which the applicant belongs, the person and the intermediate layer in the case of indirect holding of shares are eligible persons.
"Meeting" the "conditions" of the beneficial owner means that according to the provisions of Article 2 of this announcement, it can be determined to have the status of the "beneficial owner" after comprehensive analysis.
"Qualified person" means that the tax treaty treatment that such person can enjoy from China in accordance with the tax treaty signed by China and its resident country (region) when the income obtained from China is dividends is the same or more favorable than the tax treaty treatment that the applicant can enjoy.

When income derived from China is a dividend, under what circumstances can the applicant be directly determined to have "beneficial owner" status without the above requirement?

(1) The government of the other Contracting party
(2) A company that is a resident of the other Contracting party and listed in the other Contracting party
(3) Individual residents of the other Contracting party
(4) The applicant is directly or indirectly held 100% of the shares by one or more persons listed in items (1) to (3), and in the case of indirect holding of shares, the intermediate layer is a resident of China or a resident of the other Contracting party.

Other issues to be noted

Direct or indirect ownership of 100% of the shares means that the specified proportion has been reached at any time within 12 consecutive months prior to the receipt of the dividend.

Agents or designated payees are not "beneficial owners". Where the applicant receives income on behalf of the applicant through an agent, whether the agent is a resident of the other Contracting party, this shall not affect the determination of the applicant's "beneficial owner" status.

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