Editor’s Note:The State Taxation Administration recently issued the Announcement on Tax Collection and Administration Matters Concerning the Enterprise Income Tax Treatment of Corporate Restructuring Transactions (State Taxation Administration Announcement No. 13 of 2026). The Announcement clarifies that, in a corporate merger or division, the portion satisfying the prescribed conditions may qualify for special tax treatment, while the remaining portion is subject to general tax treatment. This enables the two forms of tax treatment to be applied concurrently within the same restructuring transaction. Against the backdrop of an overview of the evolution of China’s corporate restructuring tax policies, this article focuses on the key rules introduced by Announcement No. 13 and provides recommendations for their compliant application.

01 Greater Practical Applicability of the Special Tax Treatment Regime for Corporate Restructurings

To regulate and facilitate corporate mergers, acquisitions, and restructurings, China has progressively established a special enterprise income tax treatment regime for corporate restructurings. In 2009, the Ministry of Finance and the State Taxation Administration jointly issued the Notice on Certain Issues Concerning the Enterprise Income Tax Treatment of Corporate Restructuring Transactions (Cai Shui [2009] No. 59, hereinafter “Circular 59”). Circular 59 distinguishes between general tax treatment and special tax treatment and allows qualifying corporate restructurings to defer the recognition of taxable gains. Subsequently, the State Taxation Administration issued the Administrative Measures for Enterprise Income Tax on Corporate Restructuring Transactions (State Taxation Administration Announcement No. 4 of 2010, hereinafter “Announcement 4”) and the Announcement on Certain Issues Concerning the Administration of Enterprise Income Tax on Corporate Restructuring Transactions (State Taxation Administration Announcement No. 48 of 2015, hereinafter “Announcement 48”). These documents further clarified the filing, documentation-submission, and post-transaction administration requirements applicable to corporate restructurings.

Article 4 of Announcement 4 provides that “all parties to the same restructuring transaction shall adopt a consistent tax treatment—that is, the transaction shall be treated uniformly under either the general tax treatment or the special tax treatment.” For enterprises such as listed companies, which may have numerous shareholders and a complex mix of stakeholder types, requiring all parties to make a uniform election to apply special tax treatment may entail substantial communication and coordination costs in practice. As a result, even where the other conditions for special tax treatment are satisfied, the relevant treatment may remain unavailable because the parties are unable to reach a unanimous position.

To address this issue, in July 2026, the State Taxation Administration issued the Announcement on Tax Collection and Administration Matters Concerning the Income Tax Treatment of Corporate Restructuring Transactions (State Taxation Administration Announcement No. 13 of 2026, hereinafter “Announcement 13”). Announcement 13 adjusts the consistency requirement and related tax administration rules governing the application of special tax treatment to corporate mergers and divisions. Under Announcement 13, the portion of a transaction that satisfies the prescribed conditions may qualify for special tax treatment, while the remaining portion is subject to general tax treatment. This allows the two forms of tax treatment to be applied concurrently within the same merger or division.

02 Conditions for the Partial Application of Special Tax Treatment under Announcement 13

(I) Eligible Restructuring Transactions Are Limited to Corporate Mergers and Divisions

Article 1 of Announcement 13 makes clear at the outset that its scope of application is limited to “corporate merger and division transactions.” Under Article 1 of Circular 59, corporate restructuring includes “a change in an enterprise’s legal form, debt restructuring, equity acquisitions, asset acquisitions, mergers, divisions, and other transactions.”

A merger is defined as “a transaction in which one or more enterprises (hereinafter referred to as the ‘merged enterprise’ or ‘merged enterprises’) transfer all of their assets and liabilities to another existing or newly established enterprise (hereinafter referred to as the ‘surviving or newly established enterprise’), and the shareholders of the merged enterprise receive equity consideration or non-equity consideration from the surviving or newly established enterprise, thereby effecting the statutory merger of two or more enterprises.”

A division is defined as “a transaction in which an enterprise (hereinafter referred to as the ‘divided enterprise’) separates and transfers some or all of its assets to one or more existing or newly established enterprises (hereinafter referred to as the ‘resulting enterprise’ or ‘resulting enterprises’), and the shareholders of the divided enterprise receive equity consideration or non-equity consideration from the resulting enterprise, thereby effecting the statutory division of the enterprise.”

Accordingly, the special tax treatment provisions under Announcement 13 should be considered applicable only where the restructuring plan implemented by an enterprise is substantively consistent with the foregoing definitions of a merger or division.

(II) The Aggregate Shareholding Percentage of Consenting Resident Enterprise Shareholders Must Exceed 50%

Article 1 of Announcement 13 provides that: “Where the resident enterprise shareholders of the merged enterprise (or divided enterprise) whose aggregate shareholding percentage exceeds 50% reach an agreement with the merged enterprise (or divided enterprise) and the merging enterprise (or resulting enterprise) on applying special tax treatment, the equity interests held by such consenting shareholders, as well as the assets and liabilities transferred by the merged enterprise (or divided enterprise) corresponding to such equity interests and the assets and liabilities acquired by the merging enterprise (or resulting enterprise), may apply special tax treatment. The equity interests held by the remaining shareholders, as well as the assets and liabilities transferred by the merged enterprise (or divided enterprise) corresponding to such equity interests and the assets and liabilities acquired by the merging enterprise (or resulting enterprise), shall all be subject to general tax treatment.”

Accordingly, the “exceeding 50%” threshold should be calculated based on the aggregate percentage of equity interests in the merged enterprise (or divided enterprise) held by the consenting resident enterprise shareholders. This requirement focuses on the shareholding percentage, and the entities taken into account in the calculation are limited to resident enterprise shareholders. Equity interests held by individuals, partnerships, contractual asset management products, and non-resident enterprises shall not be included in calculating such percentage.

The determination date for the aggregate shareholding percentage should be based on the restructuring date referred to in Article 2 of Announcement 13.

(III) Both Categories of Key Resident Enterprise Shareholders Must Consent

Article 2 of Announcement 13 provides that an aggregate shareholding of more than 50% held by consenting resident enterprise shareholders is not, by itself, sufficient for the new mechanism to apply. Two categories of key shareholders must also have agreed, as of the restructuring date, to the application of special tax treatment: 1. resident enterprise shareholders each holding no less than 5% of the equity interests in the merged enterprise (or divided enterprise) on the restructuring date; and 2. the ten largest resident enterprise shareholders of the merged enterprise (or divided enterprise). In identifying the “ten largest resident enterprise shareholders,” the ranking should be determined by shareholding percentage exclusively among resident enterprise shareholders, rather than by selecting the ten largest shareholders from among all shareholders. Accordingly, individuals, partnerships, contractual asset management products, and non-resident enterprises do not occupy any of the ten places reserved for resident enterprise shareholders, even where their shareholding percentages rank among the highest overall.

(IV) Continuity-of-Interest Requirements Must Be Satisfied During the 12 Months Following the Restructuring

For an enterprise to continue to qualify for special tax treatment under Announcement 13, the applicable continuity-of-interest and continuity-of-business requirements must be satisfied. In particular: 1. resident enterprise shareholders that held no less than 5% of the equity interests in the merged enterprise (or divided enterprise) on the restructuring date, as well as its ten largest resident enterprise shareholders, may not transfer their equity interests within the 12-month period following the restructuring; and 2. other consenting shareholders, apart from those described above, may transfer their equity interests during that 12-month period, provided that such transfers do not cause the aggregate shareholding percentage of the consenting shareholders to fall to 50% or below.

Under the relevant rules, failure to satisfy either of the foregoing requirements will result in the transaction ceasing to qualify for special tax treatment. Where special tax treatment has already been applied, all parties to the restructuring must make the corresponding tax adjustments under the general tax treatment. Accordingly, although Announcement 13 makes it easier for the relevant parties to reach the required agreement on applying special tax treatment as of the restructuring date, it imposes stringent ongoing compliance requirements concerning continuity of ownership interests and business operations following the restructuring. After completing the restructuring, enterprises must therefore continue to monitor changes in the equity holdings of the relevant shareholders. Special tax treatment should not be regarded as a tax outcome that becomes final once a one-time determination has been made on the restructuring date.

(V) Other Conditions for Special Tax Treatment Must Still Be Satisfied

As discussed above, Announcement 13 essentially creates an exception to the principle requiring consistent tax treatment for the same restructuring transaction. It reduces the difficulty of obtaining consensus for enterprises with numerous and diverse shareholders that may otherwise find it difficult to agree on the application of special tax treatment. Nevertheless, all other requirements under the existing rules governing special tax treatment must still be satisfied. 

For example, Article 5 of Circular 59 provides:“Where a corporate restructuring simultaneously satisfies all of the following conditions, the special tax treatment provisions shall apply: 1. the restructuring has a reasonable commercial purpose and is not primarily intended to reduce, exempt, or defer tax payments; 2. the proportion of assets or equity interests acquired, merged, or divided satisfies the applicable thresholds prescribed in this Circular; 3. the original substantive business activities involving the restructured assets remain unchanged during the 12 consecutive months following the restructuring; 4. the amount of equity consideration included in the restructuring consideration satisfies the applicable proportion prescribed in this Circular; and 5. the former major shareholders that receive equity consideration in the restructuring do not transfer the equity interests so received during the 12 consecutive months following the restructuring.”Accordingly, where an enterprise intends to apply special tax treatment pursuant to Announcement 13, it should also consider all other currently effective policy documents governing corporate restructurings and conduct a comprehensive assessment of whether the restructuring transaction satisfies all applicable conditions for special tax treatment.

03 Other Supporting Rules under Announcement 13

(I) A Simplified Method May Be Elected for Determining the Tax Basis of the Portion Subject to General Tax Treatment

Announcement 13 provides two methods for determining the tax basis of the assets and liabilities attributable to the portion of a restructuring subject to general tax treatment. Under the first method, the tax basis is determined by reference to fair value. Alternatively, an enterprise may elect to apply a simplified method. Under this method, the tax basis of the relevant assets and liabilities is determined based on their original tax basis, while the difference between the corresponding fair value and the original tax basis is recognized separately as an asset. Such asset may be amortized and deducted for enterprise income tax purposes in equal installments over a ten-year period, commencing from the taxable year in which the restructuring date falls. Once elected, the simplified method may not be changed.

(II) Clarification That the Diversity of Shareholder Types in a Merged Enterprise or Divided Enterprise Does Not Affect Eligibility for the Relevant Tax Treatment

To facilitate corporate mergers, acquisitions, and restructurings, Announcement 48 had already expanded the scope of eligible shareholders to include individual shareholders of a merged enterprise in a merger and individual shareholders of a divided enterprise in a division. Building on this approach, Article 3 of Announcement 13 further expands the scope of shareholders in merger and division transactions to include partnerships, contractual asset management products, and non-resident enterprises.

It should be noted, however, that such shareholders must determine their income tax treatment in accordance with the applicable existing rules. For example, individual shareholders are required to apply the relevant individual income tax provisions.

(III) Effective Date of the New Rules and Determination of the Restructuring Date

Announcement 13 applies to corporate restructuring transactions whose restructuring date falls on or after January 1, 2026. Accordingly, the determination of the restructuring date directly affects whether the old or new rules apply. Under Article 3 of Announcement 48, for a merger, the restructuring date is the date on which the merger contract or agreement becomes effective, all parties have completed the relevant accounting treatment, and the registration of establishment or registration of changes with the competent market regulation authority has been completed. Where no registration of establishment or changes is legally required, the restructuring date is the date on which the merger contract or agreement becomes effective and all parties have completed the relevant accounting treatment. For a division, the restructuring date is the date on which the division contract or agreement becomes effective, all parties have completed the relevant accounting treatment, and the registration of establishment or registration of changes with the competent market regulation authority has been completed.

Although the foregoing rules are relatively clear when applied to ordinary merger and division transactions, practical difficulties may arise in determining the restructuring date, particularly in a merger by absorption involving a listed company. Such transactions typically involve multiple steps, including a share exchange, securities registration, transfers of title to assets, and accounting treatment, and these steps may be completed at different times. For example, where the shareholders of the absorbed enterprise receive shares in a listed company, the registration of those shares by the securities depository and clearing institution generally constitutes a key point at which the relevant rights are transferred. No corresponding registration of changes with the market regulation authority is ordinarily required at the shareholder level. In addition, assets held by the absorbed enterprise—such as real property, intellectual property rights, and long-term equity investments—may each be subject to different title-transfer procedures, which may also be completed at different times.

Therefore, in the absence of more detailed rules specifically addressing mergers by absorption involving listed companies, enterprises should carefully determine the restructuring date by taking into account the effective date of the relevant agreement, the completion of accounting treatment, securities registration, registration with the market regulation authority, and the transfer of principal assets. Enterprises should also ensure that the criteria used to identify the relevant shareholders are properly aligned with the transaction implementation process. For restructurings that straddle January 1, 2026, involve a lengthy transaction timetable, or comprise multiple steps completed at different times, enterprises are advised to communicate with the competent tax authority in advance so as to reduce uncertainty regarding the application of the old and new rules and the determination of the relevant shareholder population.

04 Recommendations for the Compliant Application of Announcement 13

(I) Conduct Transaction-Structure Analysis, Risk Assessment, and Tax Authority Consultation Before Implementing the Restructuring

An enterprise intending to apply Announcement 13 should, at the restructuring-planning stage, first determine whether the proposed transaction constitutes a corporate merger or corporate division as defined in Circular 59 and comprehensively assess whether all conditions for special tax treatment are satisfied. In addition to the requirements concerning the shareholding percentages of resident enterprise shareholders and the parties’ agreement on the applicable tax treatment, the existing rules regarding reasonable commercial purpose, the proportion of equity consideration, continuity of business operations, continuity of ownership interests, and step transactions remain applicable. The enterprise should also review the anticipated shareholding structure as of the restructuring date, verify each shareholder’s legal form, tax residency status, and shareholding percentage, identify the resident enterprise shareholders holding no less than 5% of the equity interests and the ten largest resident enterprise shareholders, and calculate in advance whether the aggregate shareholding percentage of the consenting resident enterprise shareholders exceeds 50%.

In addition, the enterprise should specify, through the restructuring agreement, a separate tax treatment agreement, shareholder undertakings, or other relevant documents, the tax treatment selected by each party, the corresponding shareholding percentages, and the parties’ ongoing shareholding obligations. Given that an equity transfer by an individual shareholder may require all parties that have applied special tax treatment to make tax adjustments, the transaction documents may also provide for restrictions on equity transfers, prior-notice obligations, tax-impact assessments, and liability for breach of contract and indemnification. Such contractual arrangements, however, constitute only an internal allocation of risk among the parties and cannot alter the statutory filing, tax-payment, and adjustment obligations borne by each taxpayer. For restructurings involving substantial transaction values, complex shareholder compositions, or complicated issues such as mixed consideration, the carryover of tax losses, or step transactions, the enterprise may also engage in advance consultation with the competent tax authority through the relevant local taxpayer-service mechanisms. Where the transaction satisfies the local eligibility requirements for an advance tax ruling, the enterprise may also consider submitting an application.

(II) Maintain Consistent Tax Filing Positions and Properly Manage and Retain Documentation During the Restructuring

During the implementation of the restructuring, all parties should continuously verify whether the transaction as actually carried out remains consistent with the agreed restructuring plan, with particular attention to the shareholder structure, form of consideration, scope of the transfer of assets and liabilities, accounting treatment, and registration with the competent market regulation authority. Where the substantive facts of the transaction change, the parties should promptly reassess whether the conditions for special tax treatment continue to be satisfied. At the same time, enterprises should prepare all supporting documents required to accompany the relevant tax filings under the applicable rules and establish a sound system for the classification and management of such materials.

Throughout the restructuring process, enterprises should also retain complete records of the restructuring agreements, corporate resolutions, statements explaining the reasonable commercial purpose of the transaction, asset valuation and tax-basis documentation, accounting records, and descriptions of relevant equity and asset transactions occurring during the 12 consecutive months preceding the restructuring. All relevant vouchers, records, and supporting materials should be properly preserved in accordance with applicable tax collection and administration requirements for subsequent review and verification.

(III) Continuously Monitor Changes in Equity Ownership During the 12 Months Following the Restructuring and Implement Appropriate Risk-Response Measures

During the 12 consecutive months following the restructuring, the enterprise should continuously monitor the shareholdings of the resident enterprise shareholders that agreed to the application of special tax treatment.

With respect to resident enterprise shareholders that held no less than 5% of the equity interests on the restructuring date, as well as the ten largest resident enterprise shareholders, particular attention should be paid to whether they transfer any equity interests acquired through the restructuring. For other consenting resident enterprise shareholders, the enterprise should, before any proposed transfer, assess whether the aggregate shareholding percentage of the remaining consenting resident enterprise shareholders will continue to exceed 50% following the transfer.

To this end, the enterprise should establish mechanisms for monitoring changes in equity ownership and requiring prior notice of proposed transfers. It should also assess in advance the potential risks arising from a failure to continue satisfying the relevant conditions, including additional tax liabilities, late-payment surcharges, amendments to tax filings, and contractual liabilities. Where necessary, the enterprise may engage professional advisers to assist in developing and implementing appropriate risk-response measures.