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3. TAXATION IN THE MAINLAND CHINA
3.6 CONTROLLED FOREIGN CORPORATION ("CFC") RULES
The PRC tax authority MAY make tax adjustments on the taxable income by adopting the reasonable approach if enterprises have made arrangements to deduct their taxable income WITH NO any reasonable commercial substances or grounds.
According to Article 45 of the CITL, the provisions of CFC rules set out is so general: it mentions that foreign companies (the subsidiary of the PRC resident company) is incorporated in low-tax jurisdictions but operationally controlled by the PRC resident enterprise, the profit sharing attributable to the resident enterprise shall be reported as taxable income IF the profit is not properly distributed without the reasonable commercial grounds. Thus undistributed profits derived by CFCs located in those low-tax jurisdictions MAY be taxed on PRC as deemed distributions;
Under the Article 47 of CITL, the term "Control" is defined as " the Chinese resident enterprise which directly or indirectly holds more than 10% of the total voting shares and together holds more than 50% of the shares of the foreign enterprise;
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