Rep Office and Tax Treaties

China has signed more than a hundred double tax agreements (“DTAs”) with overseas tax jurisdictions, including Italy. Those DTAs are generally based on OECD and UN models, included the Art. 7 Business profits, that allocate the taxation rights of the contracting jurisdictions on business profits based on the concept of the PE.

Based on the interpretation of the DTA and the general guidance provided by Circular of the State Administration of Taxation on “Agreement between the Government of the People's Republic of China and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income and Interpretations on the Clauses of the Protocols thereof” (Guo Shui Fa [2010] no. 75, “Circular 75”), a RO established by an overseas parent company in China is included in the definition of the fixed place of business, and therefore a RO is considered as a PE of the overseas parent company in case it is maintained in China for over 183 days or for a period or periods aggregating more than six months within any 12-month period.

In accordance with the guideline provided by Circular 75, a China RO of an overseas parent company is treated as a PE and the profit attributable to the PE, generally computed on a deemed basis, is taxed in China.