By Stephen Nelson, Partner and Head of King & Wood's Taxation Practice

China’s crack down on tax anti-avoidance took another major step forward with the release of a new Circular by the SAT which may severely restrict the ability of offshore holding companies to take advantage of tax treaty benefits. The SAT’s "Notice on Interpretation and Determination of Beneficial Owner under Tax Treaties” (Guoshuihan [2009] No. 601, or "Circular 601”), directs local tax authorities to investigate whether an applicant satisfies the requirements to qualify as a beneficial owner, which is a pre-requisite to enjoy the benefit of a reduced withholding tax on dividends, interest, royalties or capital gains under a double tax arrangement.