Comments on: Chris Devonshire-Ellis: RO Chief Representatives May Consider Power of Attorney in Tax Questioning http://www.china-briefing.com/news/2010/03/09/ro-chief-representatives-may-consider-power-of-attorney-in-tax-questioning.html Fri, 10 Feb 2012 06:20:47 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Matthew http://www.china-briefing.com/news/2010/03/09/ro-chief-representatives-may-consider-power-of-attorney-in-tax-questioning.html/comment-page-1#comment-28718 Matthew Tue, 23 Mar 2010 07:57:34 +0000 http://www.china-briefing.com/news/?p=6709#comment-28718 Chris, One clarification is needed. Withholding tax under the EITL Implementing Regulations is 10%, reducing the 20% rate under the EITL itself. Your analysis tends to also suggest, inadvertently I imagine, that the illegal nature of the work conducted by ROs is the reason that they are taxed. This really has little or nothing to do with it. ROs are being regarded as collecting agents for income that would otherwise be taxable in the hands of the parent company. Even if the parent and RO operated in the classic sense i.e. the RO merely promoted the parents goods, tax would still be imposed because of the existence of a PE. Chris,

One clarification is needed. Withholding tax under the EITL Implementing Regulations is 10%, reducing the 20% rate under the EITL itself.

Your analysis tends to also suggest, inadvertently I imagine, that the illegal nature of the work conducted by ROs is the reason that they are taxed. This really has little or nothing to do with it. ROs are being regarded as collecting agents for income that would otherwise be taxable in the hands of the parent company. Even if the parent and RO operated in the classic sense i.e. the RO merely promoted the parents goods, tax would still be imposed because of the existence of a PE.

]]> By: Chris Devonshire-Ellis http://www.china-briefing.com/news/2010/03/09/ro-chief-representatives-may-consider-power-of-attorney-in-tax-questioning.html/comment-page-1#comment-28279 Chris Devonshire-Ellis Fri, 12 Mar 2010 08:13:38 +0000 http://www.china-briefing.com/news/?p=6709#comment-28279 @Natalie, Many RO are used to trade, or conduct physical work in China (while billing elsewhere) which is deemed as "China derived income" and is taxable. Neither are legal, however it is commonly practiced. Say you set up a Hong Kong company, and a China RO. The China RO does all the work, but the HK company merely bills. Thats illegal. If the tax authorities can establish a 'permanent establishment' case - a direct business relationship between the HK company and the China RO, the RO will face a tax bill. Withholding tax on invoices, and/or income tax (as has been specified) are likley to be levied. With witholding tax at (typically) 20% (although it can be higher) and income tax at 25% thats a potential 45% plus tax bill. Hope that helps - Chris @Natalie, Many RO are used to trade, or conduct physical work in China (while billing elsewhere) which is deemed as “China derived income” and is taxable. Neither are legal, however it is commonly practiced. Say you set up a Hong Kong company, and a China RO. The China RO does all the work, but the HK company merely bills. Thats illegal. If the tax authorities can establish a ‘permanent establishment’ case – a direct business relationship between the HK company and the China RO, the RO will face a tax bill. Withholding tax on invoices, and/or income tax (as has been specified) are likley to be levied. With witholding tax at (typically) 20% (although it can be higher) and income tax at 25% thats a potential 45% plus tax bill.
Hope that helps – Chris

]]> By: Natalie Barton http://www.china-briefing.com/news/2010/03/09/ro-chief-representatives-may-consider-power-of-attorney-in-tax-questioning.html/comment-page-1#comment-28241 Natalie Barton Thu, 11 Mar 2010 12:51:45 +0000 http://www.china-briefing.com/news/?p=6709#comment-28241 Considering that ROs are not intended to perform sales functions or be profit-making entities, what are these "profits" that will be taxed? How does the PRC define profits in this case? Considering that ROs are not intended to perform sales functions or be profit-making entities, what are these “profits” that will be taxed? How does the PRC define profits in this case?

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