KLUWER LAW INTERNATIONAL. EUCOTAX Series on European Taxation. Europe-China Tax Treaties. Editors: Michael Lang Jianwen Liu Gongliang Tang

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1 KLUWER LAW INTERNATIONAL EUCOTAX Series on European Taxation Europe-China Tax Treaties Editors: Michael Lang Jianwen Liu Gongliang Tang Assistant Editors: Oliver- Christoph Giinther Bristar Mingxing Cao Wolters Kluwer Law & Business AUSTIN BOSTON CHICAGO NEW YORK THE NETHERLANDS

2 Preface List of Contributors List of Abbreviations xiii xv xix Chapter 1 Treaty Entitlement (Articles 1, 4, and 2 OECD Model) 1 Martin Eckerstorfer and Wei Xiong Introduction Personal Scope 2.1. Persons Covered 2.2. Person 2.3. Resident of a Contracting State Unlimited Tax Liability Second Sentence of Article 4(1) OECD Model Unlimited Tax Liability in the People's Republic of China 2.4. Dual Residence Individuals Persons Other Than Individuals Substantive Scope Territorial Scope Conclusions

3 Chapter 2 Business Profits (Articles 5, 6, 7, 8, 9, and 14 OECD Model) 33 Thomas Ecker and Jieyin Tang 1. Introduction Business Profits and Associated Companies Business Profits in General 'Enterprise' and 'Business' Definition Determination of Profits Attributable to Permanent Establishments Associated Enterprises Expansion of Source Jurisdiction through a Broad Permanent Establishment Definition Permanent Establishments in Tax Treaties Additions to the List of Permanent Establishments in Article 5(2) OECD Model Building Site, Construction, and Installation Projects The OECD Model The UN Model Different Duration Criterion Assembly Projects Supervisory Activities Service Permanent Establishment Consultancy (Services) Changes to the List of Exceptions to the General Permanent Establishment Definition in Article 5(4) OECD Model Agent Permanent Establishments Other Special Permanent Establishment Provisions Independent Personal Services Treatment of Transport Activities Immovable Property Final Remarks 77 Chapter 3 Passive Income (Articles 10,11, and 12 OECD Model) 79 Bernhard Canete, Bristar Mingxing Cao, and Yun Huang 1. Introduction Tax Sharing General Remarks Dividends Interest Royalties Beneficial Owner Provision 90 Vlll

4 4. Definition of Passive Income General Dividends Interest Royalties Qualified Interest Recipients Procedure for Reducing Tax at Source State of Source of the Interest/Royalties Conclusion 100 Chapter 4 Capital Gains (Article 13 OECD Model) 139 Bernhard Folks and Weizhen Guo 1. Overview and Structure Article 13 OECD Model Article 13 UN Model Chinese Tax Treaties Gains from the Alienation of Immovable Property Gains from the Alienation of Movable Property Forming Part of the Business Property of a Permanent Establishment or a Fixed Base Gains from the Alienation of Ships, Aircrafts, Boats, and Related Property Gains from the Alienation of Shares in Immovable Property Companies Gains from the Alienation of Shares Other than Shares in Immovable Property Companies General Rule for Gains from the Alienation of other Property Conclusion Annexe 155 Chapter 5 Employment Income (Articles 15, 16,18, 19, and 20 OECD Model) 163 Oliver-Christoph Gunther, Weibo Xing, and Jingping Zhang 1. Introduction Article 15 OECD Model: Income from Employment Article 15 OECD Model Article 15 UN Model China's Tax Treaties China's Tax Treaty Policy Article 16 OECD Model: Directors' Fees Article 16 OECD Model Article 16 UN Model 173 IX

5 3.3. China's Tax Treaties China's Tax Treaty Policy Article 18 OECD Model: Pensions Article 18 OECD Model Article 18 UN Model China's Tax Treaties China's Tax Treaty Policy Article 19 OECD Model: Government Service Article 19 OECD Model Article 19 UN Model China's Tax Treaties China's Tax Treaty Policy Article 20 OECD Model: Students Article 20 OECD Model Article 20 UN Model China's Tax Treaties China's Tax Treaty Policy Conclusion 184 Chapter 6 Artistes and Sportsmen (Article 17 OECD Model) 187 Karin Simader and Jiguang Zhai 1. Introductory Remarks Article 17(1) and (2) of the Chinese-European Tax Treaties and its Deviations from the OECD and the UN Models Source State Taxation Scope The Term 'Artiste' The Term 'Sportsman' The Purpose of Article 17(2) and the Importance of the OECD Commentary Article 17(3) of the Chinese-European Tax Treaties Policy Issues Overview Exception for Cultural Exchange Exception for Publicly Funded Activities Conclusion 203 Chapter 7 Methods to Avoid Double Taxation (Article 23 OECD Model) 205 Christian Massoner, Miao Liu, and Huifang Yang 1. Introduction The Credit Method in Chinese Tax Treaties 207

6 2.1. Overview Requirements Credit Limitation Dividends from Substantial Holdings by a Company Credit for Underlying Taxes Participation Exemption Tax Sparing Overview Tax Sparing Credit Matching Credit Domestic Law Chinese Income Tax Law Tax Credit in Enterprise Income Tax Law Tax Credit in Individual Income Tax Law Conclusion: China's Treaty Policy 235 Chapter 8 Non-Discrimination (Article 24 OECD Model) 237 Kasper Dziurdi and Yansheng Zhu 1. Introductory Remarks Taxes Covered Non-discrimination Provisions Nationals Stateless Persons Permanent Establishments Payments and Debts to Non-residents Non-resident-Controlled Enterprises Conclusion / 258 Chapter 9 Mutual Agreement, Exchange of Information and Mutual Assistance in the Collection of Taxes (Articles 25, 26, and 27 OECD Model) 261 Franz Koppensteiner, Gang Li, and Fuqiang Zhang 1. Mutual Agreement Procedure Article 25 OECD Model General Remarks Specific Case MAP: Article 25(1) and Article 25(2) Interpretative and Legislative MAP: Article 25(3) Article 25 UN Model Deviations of Chinese Double Tax Treaties from Article 25 OECD Model XI

7 2. Exchange of Information Article 26 OECD Model General Remarks Forms of Information Exchange Limitations to Information Exchange Responsibility, Obligation of Secrecy and Duty to Exchange Information Article 26 UN Model Deviations in Chinese Tax Treaties from Article 26 OECD Model Mutual Assistance in the Collection of Taxes Article 27 OECD Model Deviations in Chinese Double Tax Treaties from Article 27 OECD Model Summary 294 Index 295 xn