China Disregards U.S. Intermediary to Tax U.S. Company's Indirect Share Transfer

China's State Administration of Taxation has recently approved a request by the Zhejiang National Tax Bureau to tax a U.S. company's transfer of shares in a Delaware incorporated intermediate holding company that had owned a company resident in China. The request was granted under the anti-abuse provisions of Circular 698, which grants taxing rights for China on certain indirect transfer of shares of Chinese resident Companies.

Although Circular 698 has been regularly employed to tax indire…