Chinese tax authorities surprised Western companies last December with a new tax law aimed squarely at a standard legal mechanism to do business in China, the offshore holding company.
Now, nearly one year later, companies have found a surprisingly successful—yet potentially risky—strategy to comply with the law: pretend it’s not there.
Bureaucratically known as Circular 698, the rule calls for corporations to register the sale of offshore intermediaries if those business units hold China assets. In effect, the rule means that for some companies, even transactions occurring entirely outside China’s borders must now be reported to Beijing.
“There is a very strong ...