This is a new tax arrangement, which completely revised the tax arrangement signed by the two places from 65438 to 0998. Compared with the arrangement of 1998, the new arrangement adds three investment income clauses: dividend, interest and royalties, which gives Hong Kong investors better treatment than other agreements, which not only properly and reasonably solves the tax problems existing in the investment activities of residents in the two places, but also helps to improve the competitiveness of Hong Kong investors; Provisions superior to mainland tax laws have been formulated in terms of institutions, personal labor activities and transportation activities, which is conducive to promoting the in-depth development of economic and trade activities between the mainland and Hong Kong. At the same time, the new arrangement has increased affiliated enterprises and information exchange, which is conducive to promoting exchanges and cooperation between the tax authorities of the two places and promoting tax administration; The new CEPA reduces the possibility of double taxation as much as possible by improving mutual consultation procedures and increasing indirect credits, provides convenient and effective legal remedies for taxpayers, and better protects the legitimate rights and interests of Hong Kong investors. In addition, the new arrangement will play an active role in preventing tax evasion while ensuring that double taxation on income is avoided. In order to facilitate the understanding and implementation of the new arrangement, State Taxation Administration of The People's Republic of China explained the issues concerning the identity of residents, permanent establishment, income from employment and information exchange in the new arrangement with the Notice of State Taxation Administration of The People's Republic of China on the Interpretation and Implementation of the Relevant Provisions on the Arrangements for Avoidance of Double Taxation and Prevention of Fiscal Evasion on Income (Guo [2007] No.403, hereinafter referred to as No.403). First, the basic principles to be grasped in the implementation of the new arrangement No.403 first emphasized two principles in the implementation of the new arrangement, namely, the principle of giving priority to the implementation of the arrangement and the principle of which is better or worse. This is also the basic principle that must be followed when implementing the tax agreements (arrangements) signed between China and other countries (regions). The so-called priority principle means that when the new CEPA conflicts with the domestic law, the new CEPA should be applied first. The so-called "which is better or which is worse" principle means that whichever of the new CEPA and domestic laws gives taxpayers more favorable tax treatment will be implemented. For example, after the implementation of the new enterprise income tax law, the preferential tax rate for withholding negative income sources of non-residents is 10%, which is more favorable than the tax rate stipulated in the tax agreements (arrangements) signed between China and some countries (regions). At this time, we can no longer emphasize the priority principle of tax agreements (arrangements), but should implement the principle of which is better and which is worse, and apply a lower tax rate to taxpayers for withholding. In addition to the principle of priority implementation and which is better or worse, the implementation of the new CEPA should also follow strict principles. This is because, in order to show the central government's determination to support Hong Kong's economic development, the new CEPA contains many more favorable terms than other tax treaties. If the new CEPA is not implemented according to strict principles, it may lead to non-local tax residents abusing the new CEPA to get preferential treatment, weaken the effect of the new CEPA to promote the harmonious economic development of the two places, and damage the tax rights and interests of the two places. Two, residents enjoy the relevant preferential treatment of the new "Arrangement", provided that they become tax-paying residents (including natural persons and legal persons) in the Mainland or Hong Kong. Due to Hong Kong's special economic status and geographical location, the turnover of people is very frequent, and the threshold for becoming a temporary resident in Hong Kong is low (staying in Hong Kong for more than 65,438+080 days in a certain tax year or staying in Hong Kong for more than 300 days in two consecutive tax years). Therefore, Document 403 emphasizes that a basic principle to judge whether a natural person constitutes a tax resident in Hong Kong is to see which country (region) the permanent resident status of this natural person belongs to. In other words, even if Hong Kong individuals constitute tax residents of other countries (regions), they can still enjoy the relevant treatment of the new CEPA as long as they have not given up their permanent resident status in Hong Kong. Although an American individual constitutes a temporary resident of Hong Kong, as long as he/she has not given up his/her permanent resident status in the United States, his/her tax obligation should be judged by the Sino-US tax treaty, not by the new CEPA. Three. Determination of permanent establishment There are two typical problems in the practice of tax collection and management of enterprises in Hong Kong: (1) Tax determination of processing business with supplied materials. Mainland enterprises undertake the processing trade business of Hong Kong enterprises, and Hong Kong enterprises participate in the production, supervision and management of processed products in the Mainland. According to Article 5 of the new arrangement, Hong Kong enterprises are regarded as permanent institutions in the Mainland, and the profits due to the permanent institutions are subject to tax. However, at present, the mainland tax authorities only calculate and collect enterprise income tax according to the method of earning income from corner fees, and do not tax the profits of Hong Kong enterprises selling processed products; However, the Hong Kong Inland Revenue Department only levies 50% profits tax on the sales of processed products. In other words, 50% of the sales profits are not taxed by both parties, and there are tax loopholes. However, according to Circular No.403, judging the processing enterprises as permanent institutions has not changed the actual practice of mainland enterprises to collect enterprise income tax according to their processing fee income. This is mainly due to a series of other factors, including economic policy. Therefore, the sales profits of products processed by processing enterprises with supplied materials will not be taxed in the Mainland for the time being, but the Mainland reserves the right to tax comprehensive profits in accordance with the provisions of the new arrangement. (2) It is judged that the provision of labor services in the Mainland by Hong Kong enterprises through employees or other employees constitutes a permanent establishment problem. Hong Kong enterprises providing services (including consulting services) for a project in the Mainland only constitute a permanent establishment if they continue or accumulate for more than six months in any 12-month period. In the arrangement signed between 1998 and Hong Kong, one month for a Hong Kong enterprise to send its employees to work in the Mainland for one day is also counted as one month for working in the Mainland, and it is counted as six months, so as to determine whether it constitutes a permanent establishment. However, the new Arrangement No.403 explains that the six-month calculation period should start from the month when the enterprise sends its employees to the mainland for the first time to implement the service project, and end in the month when the employees complete the service project and finally leave the mainland. During this period, if there is no employee engaged in service activities in China for 30 consecutive days, 1 month can be deducted, and if it is calculated as more than 6 months, it will constitute a permanent establishment in the Mainland. This explanation makes the conditions for Hong Kong enterprises to set up permanent institutions in the Mainland which mainly focus on labor services relatively relaxed. According to relevant data, the mainland and Hong Kong have signed a new CEPA II Protocol, which changes the time threshold for determining a permanent labor service establishment from six months to 183 days. It can be said that such a revision has further relaxed the conditions for the establishment of a labor-oriented permanent institution, but it has also left a large planning space for taxpayers and posed new challenges to tax administration in the Mainland. Four. Property income conditions for taxation on the income from the transfer of shares of a company whose main property is real estate and shares of other companies. Document No.403 emphasizes the concept of one time, that is, only when the shareholders hold shares in the company, the book value of the company has reached more than 50%, or the shareholders once owned more than 25% of the shares of the other company, can they be taxed on the real estate or the place where the company is located at the time of transfer. The new arrangement and its protocol do not specify a specific time limit, mainly to prevent the new arrangement from being abused, because in the practice of collection and management, we have encountered such a situation: a non-resident shareholder holds far more than 25% of the shares of a company in China, but in order to avoid paying taxes in China, the shareholding ratio was deliberately reduced to 24.99% before transferring the shares. Because the tax treaty between China and the country of residence does not include the expression of property income. The introduction of the former expression in the property income clause of the new CEPA is precisely to prevent this malicious tax planning. V. Income from Employment According to the provisions of the New Arrangement, Hong Kong residents who are engaged in subordinate personal services and meet one of the following three conditions shall pay personal income tax in the Mainland: First, at the beginning or end of the relevant tax year, the recipient has stayed in the Mainland continuously or cumulatively for more than 65,438+083 days; Second, the remuneration is paid by or on behalf of mainland residents' employers; Third, the remuneration is borne by the employer's permanent establishment in the Mainland. Among these three conditions, 183 days is the most easily evaded by taxpayers by taking advantage of the convenient geographical transportation conditions in Guangdong and Hong Kong. Therefore, in order to strengthen the tax jurisdiction over this part of the income, according to the international practice and referring to the unified writing of the agreements recently signed by the mainland with other countries, the new arrangement has made new provisions on the judgment standard of 183, that is, the relevant calendar year in the old arrangement has been changed to any twelve months starting or ending in the relevant tax year. According to this principle, if the starting and ending months of any1February in which Hong Kong residents stay in the Mainland continuously or cumulatively for more than 183 days fall within two years respectively, the income earned in all working months in the Mainland in these two years shall be taxed in the Mainland. Although this new year's rolling calculation method is complicated to operate, it can effectively prevent taxpayers from evading their tax obligations in the mainland by manipulating their stay time. For Hong Kong residents who are engaged in independent personal services, the new Arrangement has made different provisions from other tax treaties: First, referring to the model of the new OECD tax treaty, the provision of special independent personal services has been cancelled, and by modifying the definition of enterprise in Article 3 of the new Arrangement, it is allowed to judge whether the personnel engaged in independent personal services constitute a permanent establishment according to the criteria of fixity, continuity and operation. Second, the concept of professionalism is no longer emphasized, that is, this article is no longer only applicable to individuals engaged in so-called professional services such as accountants, lawyers and dentists, but extends the scope of application to all individuals engaged in independent personal services, including individual industrial and commercial households. This is also the embodiment that the new CEPA promotes and supports the in-depth implementation of CEPA. Third, according to the permanent establishment clause, Hong Kong residents engaged in independent personal services should pay taxes in accordance with the individual income tax law (not the enterprise income tax law) of the Mainland after they have a permanent establishment in the Mainland. Information exchange information exchange, that is, information exchange in general tax agreements. According to the leader in charge of signing the new CEPA in State Taxation Administration of The People's Republic of China, Hong Kong insists on translating the word information into information, but hates translating it into intelligence, which fully shows that it attaches great importance to protecting taxpayers' privacy. Therefore, when exchanging and verifying Hong Kong tax information, mainland tax authorities should strictly abide by the confidentiality procedures in the Rules for the Exchange of International Tax Information, guard against leaks, and ensure that the information exchange channels between the two places are not blocked due to poor confidentiality measures. In addition, information exchange should take place after the new CEPA takes effect. The tax information of the previous year can be exchanged between the two places, but the tax adjustment should only be applied to the next year after the new arrangement takes effect.