Joyce Wen
On 29 September 2020, the Ministry of Finance and the General Administration of Taxation issued the Announcement on Clarifying the Policy for Value-Added Tax on Free Transfer of Shares and Others (the “Announcement”). The Announcement focuses on clarifying issues in the value-added taxes on free transfer of shares, and the tax issues in the compensation for lands and land attachments involved in land expropriation.
With respect to the tax issues arising from a free transfer of shares, Article 1, Paragraph 22 of the Provisions on the Pilot Transitional Policy for Replacing Business Tax with Value-Added Tax in Annex 3 of the Cai Shui [2016] No. 36 document provides that individuals engaged in the transfer of financial commodities may be exempted from value-added tax. This Announcement clarifies how value-added taxes should be calculated for the transfer of shares under other circumstances where the purchase price of the shares will be deemed as the selling price, and the transferor will calculate the payable value-added tax based on the “transfer of financial commodities.” When the transferee subsequently transfers the above shares, the selling price of the original transferor shall be the purchase price for the calculation of the value-added tax based on the “transfer of financial commodities.”
With regard to the tax issues arising from compensation for land expropriation, Article 1, Paragraph 37 of the Provisions on the Pilot Transitional Policy for Replacing Business Tax with Value-Added Tax in Annex 3 of the Cai Shui [2016] No. 36 document provides that a landowner who transfers land use rights and a land user who returns the land use rights to the landowner are exempted from value-added taxes, but the language does not clearly specify the scope of such exemption. The Announcement thus clearly states that “a landowner providing compensation to the land user for the land, as well as the relevant movable and immovable property on such land, in the expropriation of land shall be considered as the same circumstance as a land user returning the land use rights to the landowner under Article 1 (37) of the Provisions on the Pilot Transitional Policy for Replacing Business Tax with Value-Added Tax (issued via Cai Shui [2016] No. 36).” To wit, compensation for land and related movable and immovable property on the land in a land expropriation matter is exempted from value-added tax.