12 May, 2016
According to an official news report, the Beijing local tax bureau recently ordered a foreign movie star to back pay his income tax and overdue payments which amounted to over RMB 18,000,000. The application of a tax treaty was an unprecedented move by the Beijing local tax bureau, allowing them to recover Individual Income Tax (“IIT”) from the foreign movie star who had performed in China. The news report did not specify who the movie star was.
Local officials became aware that a foreign movie star who had come to Beijing had been paid USD 8,450,000 via a company set up in the U.S. Local officials and the State Administration of Tax took the view that the movie star should be taxed in Beijing based on the China-US Tax Treaty and “Substance over Form” Principal related to Enterprise Income Tax. As a result, the movie star was required to pay IIT and late payment charges to the Beijing local tax bureau.
Key Take-Away Points:
From a tax perspective, generally speaking, the tax principles set forth for one type of tax cannot be cross-referenced in the assessment of another type of tax. Therefore, the legal basis for the Beijing local tax authority’ assessment in this case is questionable and the decision thus could be subject to challenge.
For further information, please contact:
Jonathan Isaacs, Baker & McKenzie
jonathan.isaacs@bakermckenzie.com
