The double tax treaty (double tax agreement) between Spain and China is similar to any other double tax treaties (double tax agreement) that help to avoid or eliminate double taxation especially for the transnational enterprises to improve the economic exchange and relationships using the domestic laws and tax agreements legally; to avoid tax evasion for government to enhance the cooperation; in the same time to facilitate the taxation for members in one or both countries (Spain and China). The term double taxation which existed in the tax treaties is mostly juridical double taxation, which “refers to circumstances where a taxpayer is subject to tax on the same income (or capital) in more than one jurisdiction”.[i]
The double tax treaty (double tax agreement) between Spain and China is to prevent double taxation by allowing the tax paid in one of the two countries (Spain and China) to be offset against the taxes payable in the other country[ii]. The China and Spain double taxation agreement is applicable for personal and commercial taxes (mostly income tax and capital tax, including properties and appreciation). And when an individual is a residence of both (Spain and China), the individual is expected to be taxed in the country in which the individual has more relations in terms of business or personal matters.
The taxation authorities in Spain and China exchange information about such declarations, and so may investigate any anomalies that might indicate tax evasion.[iii] According to the stipulations of the treaty, the following tax treaties, which are the most important and biggest ones that are dealt with between Spain and China, are carried out by the local authorities and in accordance with the local legislation:
Applied by Spain under the double tax treaty:
- The income tax on individuals (impuestos sobre la renta de las personas físicas);
- The corporation tax (impuesto sobre sociedades);
- The capital tax (impuesto sobre el patrimonio);
- The local taxes on capital and on income (los impuestos locales sobre la renta y el patrimonio).
Applied by Chinese authority under the double tax treaty:
- The individual income tax (個人所得稅);
- The income tax concerning joint-ventures with Chinese and foreign investments (合資企業所得稅);
- The income tax concerning foreign enterprises (外企所得稅);
- The local income tax (地方所得稅).
The nature of these differ significantly depending upon each individual treaty, however each should be studied in detail to ascertain both the required legal structure and the scope of trade[iv].
[i] Krishna, Vern (2012). Income tax law (2nd ed. ed.). Toronto: Irwin Law. ISBN 978-1-55221-235-6.
[ii] Double Taxation Agreements and Your China Investment Strategy – China Briefing
[iii] Darren Rykers (2009): A Critical Analysis of how Double Tax Agreements can facilitate Fiscal Avoidance and Evasion; The Taxpayer and the Lotus, 17 Nov.2009.
[iv] Double Taxation Agreements and Your China Investment Strategy – China Briefing