Advantageous Ownership: Recent Developments in Canada and China

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Valuable Ownership: Recent Developments in Canada and China Jinyan Li April 20, 2010

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(1) "B.O." Concept: Importance Found in DTCs: everything except one Canadian settlements (Canada-Australia utilizes "usefully entitled") Chinese expense bargains Canada Litigation: Prevost Car, Velcro, MIL GAAR Forthcoming CRA Guidance China GAAR enactment (2008) State Administration of Taxation Circulars (2009) Jinyan Li

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(2) Canada: General Context Judicial way to deal with duty evasion Duke of Westminster (constrained just by GAAR) Textual understanding no substance-over-shape teaching "Arrangement shopping" - not a "filthy term" Government lost every case: e.g. MIL (arrangement shopping re capital increases) GAAR did not have any significant bearing No natural settlement manhandle convention without express LOB, exacting consistence Jinyan Li

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(3) Canada: Prévost Car Shareholder Agreement Facts: Henlys (UK) Volvo (Sweden) 49% 51% Dividend WHT rate: 10%, UK bargain 15%, Sweden settlement (diminished to 5% in 1997) 5%, Holland Sh'der assention: 80% profit approach Re Holdco and Prevost Henlys and Volvo recorded as "B.O." of Prevost in Corp. Minutes and bank doc. Profits paid specifically to Henlys without Holdco's Director's marking Holdco (Dutch) 100% Notes: No reasonable Canadian settlement arrangement on profit wht gov't messages demonstrate difference Prevost (Canada) Jinyan Li

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(4) Prévost Car Gov't contentions: Holdco is a "conductor", not "BO" "BO" ought to have a "conventional signifying" as opposed to its lawful significance English, French and Dutch renditions of "BO" require the proprietor be the "genuine" "extreme" recipient Holdco has no "substance" Jinyan Li

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(5) Prévost Car Tax Court: "local arrangement", art.3(2) Legal importance: gets the profit for his/her own utilization and delight; expect the hazard and control of the profit got" Canadian law, Quebec common law, Dutch law, master conclusions No foreordained stream of assets as an issue of law FCA: - TCC's signifying "agrees with" OECD Materials Later OECD discourse has weight "Extreme recipient" understanding makes instability Reject "pejorative perspective of holding organizations" Jinyan Li

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(6) Canada Revenue Agency Did not make a difference for leave to speak to SCC Preparing direction on B.O. Battle harsh arrangement shopping by applying: ��  LOB arrangement ��  GAAR ��  "B.O." as a particular hostile to mishandle govern in Arts.10, 11 and 12 Jinyan Li

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(7) China: General Context New GAAR in 2008 Tax strategy changed re FDI Increasing against evasion endeavors No court choices SAT Circulars viewed as law "Settlement shopping" - not a decent word "Course organizations" looked through in sourcing capital additions ( MIL kind of circumstances) Jinyan Li

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(8) China: Tax Circulars Guoshuihan , No.601, 2009: "Valuable Owner", Guoshuihan , No.81, 2009: "Profit withholding charge" Guoshuifa , No.3, 2009, Withholding Taxes Guoshuihan , No.698, Offshore exchange of Equity of Chinese organizations Extensive data reporting commitments Exchange control Registration Jinyan Li

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(9) China: "Advantageous Owner" Circular No.601 Meaning: "A man who has the privilege of possession and right of transfer over the wage or the pay creating resources" Substance over frame Negative variables Jinyan Li

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(10) China: Negative elements commitment to pass on all or most (e.g., <60%) of wage inside a predetermined period (e.g., 12 months); next to zero business exercises (other than holding the benefits); resources, size of operations, and HR are excessively little in respect to the wage got from China; No power over salary/properties and bears practically no hazard; No duty obligation in the "habitation" nation consecutive advance, permit structure Jinyan Li