Tax Treaty Case Law around the Globe 2019

S. 361China: A tax relief for corporate reorganizations was denied to an Italian company (article 24 of the OECD Model)

Na Li

S. 3621. Introduction

This contribution concerns a decision of the Yantai Municipal Intermediate People’s Court of China (Administrative Chamber) delivered on 15 August 2016, which involves application of the non-discrimination provisions in article 24 of the China- Italy Income Tax Treaty (1986) (the China-Italy Tax Treaty) . The question at issue in this case consists of three parts: (i) whether China may have taxing power over an Italian tax resident company in relation to it merging its wholly-owned Italian subsidiary (ii) whether the merger may qualify as a corporate reorganization, which could be exempted from paying Chinese income tax under the Circular 59 of Chinese domestic tax law and (iii) whether the Italian tax resident was discriminated against by the Chinese tax administration on grounds of its nationality. As this was the first non-discrimination case having been published in China on the basis of a tax treaty article, the case received much attention. The Chinese courts decided that there was no discrimination and that China could tax the Italian tax resid...