China-Taiwan DTA Stalled On Where Income To Be Taxed

by Mary Swire, Tax-News.com, Hong Kong

28 December 2009

Taiwan’s government has confirmed that the just-completed cross-strait talks between Taiwan and China did not contain any discussion on the proposed bilateral double taxation agreement (DTA) because of a last-minute change by China.

The DTA had been expected to avoid double taxation on businesses operating in both countries, and on Taiwanese employees working in China for less than six months. It would also, it was said, have contained provisions for the exchange of tax information between the two countries, consistent with international standards.

The reason for the delay according to the Taiwanese government, was that, contrary to previous discussions, the Chinese negotiators at the talks had moved away from the usual principle that tax should be levied according to residence of the taxpayer, rather than the income’s origin.

Pointing to the precedent of the tax agreement between China and Hong Kong, China now wants the right to tax Taiwanese companies and individuals with earnings in China. Taiwan’s position is that the residence of the taxpayer is the international norm and that, in addition, China should not equate the position of Taiwan with that of Hong Kong.

Obviously, the DTA, which was to have taken effect next month, will now be delayed. It was unable to be confirmed whether the DTA could even be completed during the next stage of the talks.

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