China-Taiwan Tax Stalemate to effect Airlines

Posted by on January 27, 2010 under Corporate Tax Planning, International tax | Be the First to Comment

The failure by Taiwan and China to reach agreement on a Double Tax Agreements looks like it will adversely effect airlines operating across the strait.

The talks between China and Taiwan in December 2009 did not achieve a final agreement but it was agreed that airlines from both sides would receive interim preferential tax treatment. China had implemented its side of the bargain, waiving income and business tax on China Airlines and EVA Air, the two Taiwanese airline. However, Taiwan’s commitment could be satisfied as the relevant law has yet to pass through the Taiwanese legislature.

Accordingly, China has now asked the two airlines to pay back taxes to December 2009. China Airlines has applied to defer the tax, although it is not clear on what basis. EVA Air did not receive the official waiver originally and, as such, has not been able to transfer its earnings out of China as it does not have a tax clearance certificate as required by China’s FOREX regulations.