Special tax treatment of corporate restructuring

Corporate taxpayers may, under certain conditions, defer payment of corporate income tax payable due to the restructuring of their business. This is referred to as the special tax treatment of corporate restructuring. As compared with ordinary tax treatment, the date when the income tax is due is pushed back to the time when the relevant assets or interests are redisposed of after the completion of the restructuring. Clearly, this is beneficial to the taxpayer undertaking restructuring.

The main regulatory documents which relate to this are the Several Issues Regarding the Handling of Corporate Income Tax on Business Restructuring by Enterprises Notice (Cai Shui No. 59), issued by the Ministry of Finance and the State Administration of Taxation in 2009, and the Corporate Income Tax on Business Restructuring by Enterprises Notice (Guo Shui No. 4), issued by the State Administration of Taxation in 2010. These two documents lay down different conditions for special tax treatment of different forms of corporate restructuring.

Forms of corporate restructuring

According to Cai Shui No. 59, corporate restructuring refers to transactions involving major changes in the legal or economic structure of an enterprise outside the ordinary course of its business. This includes the following:

A change in the legal form of the enterprise. This refers to changes to registered name, address and organizational form, such as changing from a legal person into a sole proprietorship, a partnership or other organizations which are not legal persons. The enterprise might change from a limited liability company into a joint stock limited company, or it might transfer its place of registration to somewhere outside the mainland PRC.

Hu Xiaodong is a partner at Concord & Partners in Beijing