Cross-border Tax Talks

China Tax Update: Tariff turmoil and treaty tensions

Doug McHoney (PwC’s International Tax Services Global Leader) is joined by Jenny Chong, Shanghai-based International Tax Partner and PwC’s Asia-Pacific International Tax Services Leader. Doug and Jenny discuss the structure and enforcement of China’s international tax regime, including corporate tax rates, incentives, CFC rules, and foreign tax credits. They examine the complexities of indirect stock transfer rules, audit trends, and beneficial ownership requirements. The conversation turns to Pillar Two, where Jenny outlines how Chinese multinationals are preparing despite a lack of formal adoption. They also explore the implications of potential termination of the US-China tax treaty and the resurgence of tariffs. Jenny shares how Chinese companies are adapting to compliance burdens and regulatory uncertainty amidst global tax and trade tensions. 

• 00:00 - Doug introduces Jenny Chong at PwC’s Asia-Pacific Global Tax Symposium in Singapore
• 02:55 -Overview of China’s corporate tax system, tax rates, incentives, and withholding taxes 
• 05:25 - China’s foreign tax credit system and comparison to US model 
• 06:25 - China's Controlled Foreign Corporation (CFC) rules and limitations in enforcement 
• 09:00 - Challenges interpreting ‘commercial purpose’ and ‘active income’ under China’s CFC rules 
• 10:00 - Lack of detailed administrative guidance and case law in China’s tax system 
• 12:00 - China’s indirect stock transfer rules and exceptions under Public Notice 7 
• 15:55-  Pillar Two: China’s cautious stance and current non-implementation status 
• 17:25 - How Chinese authorities are evaluating Pillar Two’s potential impact 
• 20:25 - Challenges Chinese MNEs face in Pillar Two data collection and compliance 
• 22:30 - Decentralized tax models in China and Japan vs. centralized needs of Pillar Two 
• 24:05 - Concerns over UTPR and China’s low effective tax rate due to incentives 
• 25:10 - Potential suspension of US-China tax treaty: implications and uncertainties 
• 27:00 - PE thresholds and risk of double taxation without treaty protection 
• 28:15 - Withholding tax impact and treaty-shopping considerations 
• 29:45 - US–China investment relationships and high-level political dynamics 
• 30:50 - Trade tensions: recent tariff fluctuations and business impact in China 
• 33:00 - Chinese companies explore supply chain alternatives amid trade uncertainty 
• 34:40 - China audit trends: scrutiny of tax incentives and regional benefits 
• 36:03 - Focus on beneficial ownership, indirect transfers, and restructuring compliance 
• 38:35 - Final reflections on US–China tax dynamics and global uncertainty 

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