chinese international taxation

 
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please do the question 2 only
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1
Chinese Int’l Taxation (201
4
) Exam
Sydney University
Faculty of Law
Chinese International Taxation
[LAWS6091
–
105
]
TAKE
–
HOME EXAMINATION
(8
0
marks)
Term: Summer, 2014
EXAMINER:
Professor J. Li
INSTRUCTIONS:
1.
Please write your name on the cover page of your answer.
2.
This exam
accounts for 80% of the marks for the course.
You must answer all questions.
3.
Page limit
is indicated for each question. Please use Times New Roman, font 12, “normal”
margin, and single spacing in typing your answers. Please start a new question on a new
page.
4.
Ind
ependent work:
This exam must be
your
own work. All reliance on sources, i
ncluding the
work of colleagues and other students, must be fully and properly acknowledged. Plagiarism
will result in a fail mark for this course and must be reported to the Dean of the Law Faculty.
5.
Citation:
In your answers, please g
ive specific referenc
es to such provisions of the
Chinese
tax legislation, SAT circulars, or an applicable tax treaty.
If secondary sources are cited,
please make sure such source is clearly identified so that the Examiner can track down the
source for verification purposes.
6.
A
cronyms:
You may use:
“
IIT
” for “
Individual Income Tax
”,
“IITL or IITR” for “IIT Law or IIT
Implementation Regulations”; “EIT
Law or CIT Law
” for “Enterprise Income Tax Law
”, “
EIT
Regs. or CIT Regs.” for
“Enterprise Income Tax
Regulations
”, “
SAT
”
for
“State
Administration of Taxation
.
”
7.
Assumptions:
If you need to make assumptions, please make “reasonable” assumptions.
You can assume that the exchange rate is
5
yuan (or RMB) for
one Australian dollar.
2
Chinese Int’l Taxation (201
4
) Exam
Question 1 (
15
marks
, maximum
3
pages
)
Assum
e
you work for a consulting firm that provide
s
tax advice to clients.
One of your
client
s
is
a hot Australian rock band, named
AB
/
CD based in Sydney Australia.
You are asked to advise
the Band about the possible Chinese income tax consequences of the
following activities in
China.
AB/CD
has four members,
Ms. A, Ms. B, Ms. C and Ms. D,
each is a resident of Australia for
Australian tax purposes. The band
entered into a contract with
Beijing Grand Hall of Music to
play
one concert a month there from May
to October in 201
3, for a total of six concerts. The
band arrived two days before each concert. They were each given a dressing room and
were
allowed to use the building in order to conduct their rehearsal. They le
ft
China the day after
they performed the show. The band
was
paid RMB1million per appearance. At their
June
concert, one of the audience members, Rocky Mao, enjoyed the show so much that he decided
he would like them to play at his 40th birthday party. Rock
y called up his lawyer, Magic Wang,
and told him to do whatever it took to get the band to play at his birthday party on
September
11
, 2013 which took place at his
villa
in
Tsingdao.
The contract
was
negotiated by Magic and
the band’s
Australian
agent
w
ho
flew out to Tsingdao to complete the negotiations. Rocky paid
the band RMB
1.5
million for the private appearance.
The band spent four extra days in China in
order to do the performance on
September 11
.
What are the Chinese income tax consequences of these t
ransactions for
each member
if the
band? Please consider both Chinese domestic law and the applicable tax treaty.
3
Chinese Int’l Taxation (201
4
) Exam
Ques
tion
2
(
15
marks, maximum
3
pages
)
Adam and Eve
live in
Sydney
,
Australia
. They
own and
run a small, yet prosperous, engineering
company
–
A&E Engineering Ltd. (AEEL), based in Sydney. AEEL
designs
solar
panels and
is
gaining an international reputation for its expertise. In
May o
f 2013,
AEEL
was approached by
the City of Taiyuan, China t
o design
solar panels to be mounted on all government and publicly
–
owned buildings
in order to help
develop a cleaner energy source
than coal
–
burning.
On 1
July
2013
Adam and Eve
went to
Taiyuan
to work on the project full
–
time, remaining there
until
December 20, 2013 when they returned
to
Sydney
.
T
hey spent
the month of January
in
Sydney to
finish
the preliminary technical drawings and
design
.
From February 14 to March 13,
they returned to Taiyuan to complete the project. T
he
M
ayor of
Taiyuan
gave
Adam and Eve
exclusive permission to use two offices in the City Hall as a work space. The project was a huge
success.
AEEL
received RMB
3
mi
llion at the end of 2013 and another RMB
7
million in
April
2014
after
all of the
work was
completed
and Adam and Eve
went
back to
Sydney.
AEEL
incurred the following cost and expenses in respect of the project in Taiyuan: RMB
800,000 salaries to Adam
and Eve; RMB600,000 travel expenses (air tickets, local transportation,
hotel and living expenses in Taiyuan);
RMB 5,000 insurance premium to cover travel risks for
Adam and Eve; RMB 20,000 entertainment expenses in Taiyuan; and RMB10,000
on
telephone
a
nd Internet access.
Was AEEL liable to Chinese Enterprise Income Tax? If so, what is its Chinese tax liability?
4
Chinese Int’l Taxation (201
4
) Exam
Question
3
(
15
marks, maximum
2
pages
)
Aco and Bco are both resident companies in Australia.
They are contemplating a
n
investment in
building a “
toll
highway
”
in Western China
.
They have secured a Chinese company
(China Ltd)
as a partner who can obtain the necessary
regulatory approvals and
land
–
use right to the
land
for the highway
.
In light of the Chinese government’s policy to stimulate economic growth in
Western China, Aco and Bco are confident that the project will be successful.
To structure the
investment,
Aco and Bco plan to form a holding company in Singapore (Holdco) to be e
qually
owned by Aco and Bco. Holdco will form
JVC,
a join
t
venture company with China Ltd.
under
Chinese law.
JVC will build the highway. Once the highway is built, Aco and Bco want to divest
and sell their interest to another company who is more intereste
d in managing the operation of
the highway.
Technically, they want to sell their shares in Holdco. In anticipation of a significant
amount of capital gain from such sale, Aco and Bco want to know
if
the
gain will be taxed in
China.
They have
come to you
for advice. Please prepare a brief memorandum that
expla
i
n
s
the
applicable
Chinese tax law and administrative policies on the treatment of capital
gains and
provides
your opinion.
Question
4
(
15
marks, maximum
3
pages
)
Explain in your own wo
rds the meaning and purpose of
Articles 23 and 24 of the Enterprise
Income Tax Law. Use at least one example to illustrate the application of these provisions.
Question 5 (20 marks, maximum 4 pages)
Assume that y
ou are
a
n
associate of a firm
and your boss
asked
you
to write a brief
memorandum on
the
State Administration of Taxation’s position on the relevance of “location
specific advantage” in Chinese transfer pricing practice
and your critique of su
ch
position
–