CHINA EMBARKS ON INVESTIGATION OF SECONDMENT ARRANGEMENTS

It has been common practice for foreign entities to second their employees to their Chinese affiliates to fill a management or technical position. When these expatriates' payroll costs continue to be managed by the foreign home entity, the Chinese host entity has been able to reimburse the remu...

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Bibliographic Details
Published in:Journal of International Taxation 2009-12, Vol.20 (12), p.7
Main Authors: Choy, Andrew, Chu, Sandy, Lin, Vickie, Hou, Judy
Format: Article
Language:English
Subjects:
Compensation
Employees
Employment
Expatriates
Foreign exchange controls
Income taxes
International taxation
Multinational corporations
Payroll costs
Permanent establishment
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Summary:It has been common practice for foreign entities to second their employees to their Chinese affiliates to fill a management or technical position. When these expatriates' payroll costs continue to be managed by the foreign home entity, the Chinese host entity has been able to reimburse the remuneration expenses to the foreign home entity without creating permanent establishment (PE) exposure. Recent actions by Chinese tax authorities in various localities, however, may raise some concerns. A secondment arrangement without substance or proper documentation could increase PE exposure and invite a challenge by the Chinese tax authorities. U.S. multinationals that have secondment arrangements with their Chinese affiliates may need to assess the potential consequences by reevaluating their current arrangements, particularly with respect to seconded employees' activities as well as the terms and conditions of the agreements (both oral understandings and in writing).
ISSN:1049-6378