Announcement 39, effective from July 1 2011, was released earlier this month to deal with the income tax treatment of the transfer by enterprises of restricted stock in listed companies.
The announcement states that proceeds by enterprises from the transfer of such restricted stocks will be included as revenue for corporate tax purposes.
Where businesses are not able to provide the complete and genuine certification of the original cost, the tax authorities will deem the original cost and the reasonable taxes and fess of the restricted stocks as 15% of the revenue derived from the transfer of the restricted stocks.
Before the release of Announcement 39, when businesses transferred restricted stocks held on behalf of other businesses and passed the net proceeds to the actual owner, there was a high risk of double taxation.
Under Chinese tax laws, the authorities have the power to impose corporate tax on the individual enterprises. This development reduces this exposure considerably.
Announcement 39 provides relief and clarity to taxpayers that have entered into special shareholding arrangements under the share split reform.
