New DTA between Switzerland and China effective from 15 December 2014 – Which impact on profits gained in previous years?
The new Chinese – Swiss treaty for the avoidance of double tax now privileges the dividend payments gained by the companies who have a direct shareholding of at least 25% to 5% withholding tax rate instead of the previous 10%. It is not clear whether the new regulation also applies for such profits gained by the company in previous years but distributed on or after 1 January 2015.
According to the Announcement of the State Administration of Taxation on the Entry into Force of the Agreement between the Government of the People’s Republic of China and the Swiss Federal Council for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital and the Protocol, effective by 6 January 2015, the Agreement and the Protocol shall take effect as of November 15, 2014 and apply to the income obtained on or after January 1, 2015.
“Income” according to the DTA as well as this announcement means the income gained by the investor. Therefore, this regulation makes clear that also for previous years profit, the 5% regulation shall apply. FCN interviewed the Shanghai tax bureau and received an oral confirmation of this practice for Shanghai.
We hint that in China the execution of new laws and regulations may take time and certain test cases are required. We recommend consulting with your local tax bureau for the applied practice.