China Internet & New Media: Tax scrutiny appears to be tightening — Withholding tax and related-party transactions increasingly in focus

We hosted a call with a tax expert with more than 20 years of experience in cross-border taxation, related-party transactions and offshore listings. The expert believes China's tax enforcement environment has tightened materially over the past year and is unlikely to ease in the near term, with large overseas-listed Chinese companies, including internet companies, remaining an area of regulatory scrutiny. For overseas-listed internet companies, the expert highlighted two key areas of potential tax risks. First, tax authorities are applying greater scrutiny to whether Hong Kong holding entities have sufficient business substance to qualify for the 5% preferential withholding tax rate on dividends received from their mainland subsidiaries, versus the standard 10% rate;