Agreement between the government of the United States of America and the government of the People's Republic of China for the avoidance of double taxation and the prevention of tax evasion with respect to taxes on income

by the Governments of the United States of America and the People's Republic of China

UNITED STATES-THE PEOPLE'S REPUBLIC OF CHINA INCOME TAX CONVENTION
Agreement And Related Protocol Signed at Beijing on April 30, 1984;
Second Protocol Signed at Beijing on May 10, 1986;
Ratification Advised by The Senate of The United States of America on July 24, 1986;
Instruments of Ratification Exchanged on October 22,1986;
Entered into Force on January 1, 1987.
GENERAL EFFECTIVE DATE UNDER ARTICLE 27: 1 JANUARY 1987
TABLE OF ARTICLES
Article 1---------------------------------Persons Covered
Article 2---------------------------------Taxes Covered
Article 3---------------------------------Definitions
Article 4---------------------------------Residence
Article 5---------------------------------Permanent Establishment
Article 6---------------------------------Income from Real Property
Article 7---------------------------------Business Profits
Article 8---------------------------------Related Enterprises
Article 9---------------------------------Dividends
Article 10--------------------------------Interest
Article 11--------------------------------Royalties
Article 12--------------------------------Gains
Article 13--------------------------------Independent Personal Services
Article 14--------------------------------Dependent Personal Services
Article 15--------------------------------Directors’ Fees
Article 16--------------------------------Artistes and Athletes
Article 17--------------------------------Pensions and Annuities
Article 18--------------------------------Government Employees and Pensions
Article 19--------------------------------Teachers, Professors and Researchers
Article 20--------------------------------Students and Trainees
Article 21--------------------------------Other Income
Article 22--------------------------------Elimination of Double Taxation
Article 23--------------------------------Nondiscrimination
Article 24--------------------------------Mutual Agreement
Article 25--------------------------------Exchange of Information
Article 26--------------------------------Diplomats and Consular Officers
Article 27--------------------------------Entry into Force
Article 28--------------------------------Termination
Protocol 1--------------------------------of 30 April, 1984
Letter of Submittal---------------------of 24 July, 1984
Letter of Transmittal-------------------of 10 August, 1984
Notes of Exchange ---------------------of 30 April, 1984
Protocol 2--------------------------------of 10 May, 1986
Letter of Submittal (Protocol 2)------of 20 May, 1986
Letter of Transmittal (Protocol 2)----of 5 June, 1986
The “Saving Clause”-------------------Paragraph 2 of the Protocol 1 of 30 April, 1984
TAX AGREEMENT WITH THE PEOPLE'S REPUBLIC OF CHINA
MESSAGE
FROM
THE PRESIDENT OF THE UNITED STATES
TRANSMITTING
THE AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE
GOVERNMENT OF THE PEOPLE'S REPUBLIC OF CHINA FOR THE AVOIDANCE OF DOUBLE
TAXATION AND THE PREVENTION OF TAX EVASION WITH RESPECT TO TAXES ON INCOME,
TOGETHER WITH A SUPPLEMENTARY PROTOCOL AND EXCHANGE OF NOTES, SIGNED AT BEIJING
ON APRIL 30, 1984
LETTER OF SUBMITTAL
DEPARTMENT OF STATE,
Washington, July 24, 1984.
THE PRESIDENT,
The White House.
THE PRESIDENT: I have the honor to submit to you, with a view to its transmission to the Senate for advice
and consent to ratification, the Agreement between the Government of the United States of America and the
Government of the People's Republic of China for the Avoidance of Double Taxation and the Prevention of Tax
Evasion with Respect to Taxes on Income, together with a supplementary protocol and exchange of notes, which
you signed at Beijing on April 30, 1984.
The agreement is the first complete income tax treaty to be signed with the People's Republic of China. A
limited treaty affecting the taxation of income from international shipping and aircraft operations was signed at
Beijing on March 5, 1982, (97th Cong. 2d. Sess., Senate Treaty Doc. No. 97-24, June 16, 1982) and is presently in
force.
The present agreement is based on model income tax treaties prepared by the Department of the Treasury, the
United Nations, and the OECD. Like other United States tax treaties, it provides rules for determining the extent to
which each country may tax particular types of income. Where the host country may tax, it agrees to impose its
income tax in a non-discriminatory manner. The agreement provides that the country of residence will give a foreign
tax credit for income tax paid to the other country. If any potential problems of double taxation should arise, the tax
officials of the two countries agree to consult to try to resolve them.
All provisions of the agreement are reciprocal. Some will benefit especially United States investors. For
instance, investors will know before undertaking a transaction in China what the income tax consequences will be.
Business profits will not be taxable by China unless attributable to a "permanent establishment", as defined in the
agreement. Taxation by China of the remuneration of United States citizens who are self-employed or employed by
private firms is generally permissible only if they remain in China more than six months a year. In addition, the
agreement limits the tax which each country may impose on dividends, interest and royalties derived by residents of
the other country to no more than 10 percent in each case.
The protocol clarifies certain provisions of the agreement and also provides for cooperation between the tax
officials of the two countries to prevent tax evasion.
In the accompanying exchange of notes, the United States agrees to amend the treaty with China to include a
"tax sparing credit" if such a provision is ever included in a United States tax treaty with another country. Presently,
the United States does not permit a "tax sparing" credit, i.e. a foreign tax credit for the statutory full amount of the
foreign tax even if, in fact, that tax has been reduced or waived as an incentive. It is a firm element of U.S. policy
that a foreign tax credit be given only for foreign income taxes actually paid.
The agreement provides that the Contracting States shall notify each other in writing, through diplomatic
channels, upon the completion of their respective legal procedures to bring the agreement into force. The agreement
will enter into force on the thirtieth day after the date of the latter of such notifications and shall take effect with
respect to income derived during taxable years beginning on or after the first day of January next following the date
on which the agreement enters into force.
A technical memorandum explaining in detail the provisions of the agreement is being prepared by the
Department of the Treasury and will be submitted separately to the Senate Committee on Foreign Relations.
The Department of the Treasury, with the cooperation of the Department of State, was primarily responsible for
the negotiation of the agreement. It has the full approval of both Departments.
Respectfully submitted,
George P. Schultz
LETTER OF TRANSMITTAL
THE WHITE HOUSE, August 10,1984.
To the Senate of the United States:
I transmit herewith for Senate advice and consent to ratification the Agreement between the Government of the
United States of America and the Government of the People's Republic of China for the Avoidance of Double
Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, together with a supplementary
protocol and exchange of notes, signed at Beijing on April 30, 1984. I also transmit the report of the Department of
State on the Agreement.
The Agreement is the first complete income tax treaty between the two countries. A limited treaty concerning
the taxation of income from international shipping and air transportation, signed at Beijing on March 5, 1982, was
approved by the Senate on July 27,1983 and is now in force.
The Agreement is based on model income tax treaties developed by the Department of the Treasury, the
Organization for Economic Cooperation and Development, and the United Nations. The provisions of the
Agreement are reciprocal and, like other tax treaties, represent a balanced package of benefits and concessions.
The Agreement will contribute to a long-run expansion of economic relations between the two countries by
providing clear rules as to the tax consequences of investing or working in the other country. It reduces the tax
which residents of one country must pay to the other on certain types of income, such as dividends, interest, and
royalties and provides limited exemptions for visiting teachers, researchers and students. The Agreement also
assures nondiscriminatory taxation in the host country, and, provides a mechanism for cooperation between the tax
authorities to try to resolve any potential problems of double taxation.
I recommend that the Senate give early and favorable consideration to the Agreement and give its advice and
consent to ratification.
RONALD REAGAN.
AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE
GOVERNMENT OF THE PEOPLE'S REPUBLIC OF CHINA
FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF TAX EVASION WITH RESPECT TO TAXES ON INCOME
The Government of the United States of America and the Government of the People's Republic of China,
Desiring to conclude an Agreement for the avoidance of double taxation and the prevention of tax evasion with
respect to taxes on income,
Have agreed as follows:
ARTICLE 1
(Persons Covered)
This Agreement shall apply to persons who are residents of one or both of the Contracting States.
ARTICLE 2
(Taxes Covered)
1. The taxes to which this Agreement applies are
(a) in the People's Republic of China:
(I) the individual income tax;
(ii) the income tax concerning joint ventures with Chinese and foreign investment;
(iii) the income tax concerning foreign enterprises;
(iv) the local income tax (herein after referred to as "Chinese tax").
(b) in the United States of America: the Federal income taxes imposed (hereinafter referred to as
"United States tax").
2. The Agreement shall apply also to any identical or substantially similar taxes which are imposed after the date
of signature of the Agreement in addition to, or in place of, those referred to in paragraph 1. Within an appropriate
time period, the competent authorities of the Contracting States shall notify each other of any substantial changes
which have been made in their respective taxation laws.
ARTICLE 3
(Definitions)
1. In this Agreement, unless the context otherwise requires,
(a) the term "the People's Republic of China", when used in a geographical sense, means all the
territory of the People's Republic of China, including its territorial sea, in which the laws relating to
Chinese tax are in force, and all the area beyond its territorial sea, including the sea-bed and subsoil thereof,
over which the People's Republic of China has jurisdiction in accordance with international law and in
which the laws relating to Chinese tax are in force;
(b) the term "the United States of America", when used in a geographical sense, means all the
territory of the United States of America, including its territorial sea, in which the laws relating to United
States tax are in force, and all the area beyond its territorial sea, including the seabed and subsoil thereof,
over which the United States of America has jurisdiction in accordance with international law and in which
the laws relating to United States tax are in force;
(c) the terms "a Contracting State" and "the other Contracting State" mean the People's Republic
of China or the United States of America, as the context requires;
(d) the term "tax" means Chinese tax or United States tax, as the context requires;
(e) the term "person" includes an individual, a company, a partnership and any other body of
persons;
(f) the term "company" means any body corporate or any entity which is treated as a body
corporate for tax purposes;
(g) the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State"
mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on
by a resident of the other Contracting State;
(h) the term "nationals" means all individuals having the nationality of a Contracting State and all
legal persons, partnerships and other bodies of persons deriving their status as such from the law in force in
a Contracting State;
(I) the term "competent authority" means
(I) in the People's Republic of China, the Ministry of Finance or its authorized
representative; and
(ii) in the United States of America, the Secretary of the Treasury or his authorized
representative.
2. As regards the application of the Agreement by a Contracting State any term not defined therein shall, unless
the context otherwise requires, have the meaning which it has under the laws of that Contracting State concerning
the taxes to which the Agreement applies.
ARTICLE 4
(Residence)
1. For the purposes of this Agreement, the term "resident of a Contracting State" means any person who, under
the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of head office,
place of incorporation or any other criterion of a similar nature.
2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then
the competent authorities of the Contracting States shall determine through consultations the Contracting State of
which that individual shall be deemed to be a resident for the purposes of this Agreement.
3. Where by reason of the provisions of paragraph 1 a company is a resident of both Contracting States, then the
competent authorities of the Contracting States shall determine through consultations the Contracting State of which
the company shall be deemed to be a resident for the purposes of this Agreement, and, if they are unable to so
determine, the company shall not be considered to be a resident of either Contracting State for purposes of enjoying
benefits under this Agreement.
4. Where by reason of the provisions of paragraph 1 a company is a resident of the United States of America,
and, under a tax agreement between the People's Republic of China and a third country is also a resident of that third
country, the company shall not be considered to be a resident of the United States of America for purposes of
enjoying benefits under this Agreement.
ARTICLE 5
(Permanent Establishment)
1. For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business
through which the business of an enterprise is wholly or partly carried on.
2. The term "permanent establishment" includes especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop; and
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.
 3. The term "permanent establishment" also includes:
(a) a building site, a construction, assembly or installation project, or supervisory activities in
connection therewith, but only where such site, project or activities continue for a period of more than six
months;
(b) an installation, drilling rig or ship used for the exploration or exploitation of natural resources,
but only if so used for a period of more than three months; and
(c) the furnishing of services, including consultancy services, by an enterprise through employees
or other personnel engaged by the enterprise for such purpose, but only where such activities continue (for
the same or a connected project) within the country for a period or periods aggregating more than six
months within any twelve month period.
4. Notwithstanding the provisions of paragraphs 1 through 3, the term "permanent establishment" shall be
deemed not to include:
(a) the use of facilities solely for the purpose of storage, display or delivery of goods or
merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the
purpose of storage, display or delivery;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the
purpose of processing by another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or
merchandise, or of collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the
enterprise, any other activity of a preparatory or auxiliary character;
(f) the maintenance of a fixed place of business solely for any combination of the activities
mentioned in subparagraphs (a) through (e), provided that the overall activity of the fixed place of business
resulting from this combination is of a preparatory or auxiliary character.
5. Notwithstanding the provisions of paragraphs 1 and 2, where a person, other than an agent of an independent
status to whom paragraph 6 applies, is acting on behalf of an enterprise and has and habitually exercises in a
Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to
have a permanent establishment in that Contracting State in respect of any activities which that person undertakes
for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if
exercised through a fixed place of business, would not make this fixed place of business a permanent establishment
under the provisions of that paragraph.
6. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other
Contracting State merely because it carries on business in that other Contracting State through a broker, general
commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary
course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on
behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this
paragraph if it is shown that the transactions between the agent and the enterprise were not made under arm's-length
conditions.
7. The fact that a company which is a resident of a Contracting State controls or is controlled by a company
which is a resident of the other Contracting State, or which carries on business in that other Contracting State
(whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent
establishment of the other.
ARTICLE 6
(Income from Real Property)
1. Income derived by a resident of a Contracting State from real property situated in the other Contracting State
may be taxed in that other Contracting State.
 2. The term "real property" shall have the meaning which it has under the laws of the Contracting State in which
the property in question is situated. The term shall in any case include property accessory to real property, livestock
and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed
property apply, usufruct of real property and rights to variable or fixed payments as consideration for the working
of, or the right to work, mineral deposits, sources and other natural resources; ships and aircraft shall not be regarded
as real property.
3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting or use in any other
form of real property.
4. The provisions of paragraphs 1 and 3 shall also apply to the income from real property of an enterprise and to
income from real property used for the performance of independent personal services.
ARTICLE 7
(Business Profits)
1. The profits of an enterprise of a Contracting State shall be taxable only in that Contracting State unless the
enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If
the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other Contracting
State but only so much of them as is attributable to that permanent establishment.
2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the
other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be
attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and
separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly
independently with the enterprise of which it is a permanent establishment.
3. In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses
which are incurred for the purposes of the permanent establishment, including executive and general administrative
expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere. However,
no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of
actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by
way of royalties or other similar payments or by way of interest on money lent to the permanent establishment.
Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts
charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head
office of the enterprise or any of its other offices, by way of royalties or other similar payments or by way of interest
on money lent to the head office of the enterprise or any of its other offices.
4. Insofar as the tax law of a Contracting State provides with respect to a specific industry that the profits to be
attributed to a permanent establishment are to be determined on the basis of a deemed profit, nothing in paragraph 2
shall preclude that Contracting State from applying those provisions of its law, provided that the result is in
accordance with the principles contained in this Article.
5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent
establishment of goods or merchandise for the enterprise.
6. For the purpose of paragraphs 1 through 5, the profits to be attributed to the permanent establishment shall be
determined by the same method year by year unless there is good and sufficient reason to the contrary.
7. Where profits include items of income which are dealt with separately in other Articles of this Agreement,
then the provisions of those Articles shall not be affected by the provisions of this Article.
ARTICLE 8
(Related Enterprises)
 1. Where
(a) an enterprise of a Contracting State participates directly or indirectly in the management,
control or capital of an enterprise of the other Contracting State; or
(b) the same persons participate directly or indirectly in the management, control or capital of an
enterprise of a Contracting State and an enterprise of the other Contracting State,
and in either case the relationship between the two enterprises in their commercial or financial relations differs from
that which would exist between independent enterprises, then any profits which, but for those conditions would have
accrued to one of the enterprises, but by reason of those conditions have not so accrued, may be included in the
profits of that enterprise and taxed accordingly.
2. Where a Contracting State includes in the profits of an enterprise of that Contracting State-and taxes
accordingly-profits on which an enterprise of the other Contracting State has been charged to tax in that other
Contracting State, and the profits so included are profits which would have accrued to the enterprise of the first-
mentioned State if the conditions made between the two enterprises had been those which would have been made
between independent enterprises, then that other Contracting State shall make an appropriate adjustment to the
amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be paid to the
other provisions of this Agreement and the competent authorities of the Contracting States shall if necessary consult
each other.
ARTICLE 9
(Dividends)
1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting
State may be taxed in that other Contracting State.
2. However, such dividends may also be taxed in the Contracting State of which the company paying the
dividends is a resident, and according to the laws of that Contracting State, but if the recipient is the beneficial
owner of the dividends the tax so charged shall not exceed 10 percent of the gross amount of the dividends.
This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends
are paid.
3. The term "dividends" as used in this Article means income from shares or other rights, not being debt-claims,
participating in profits, as well as income from other corporate rights which is subjected to the same taxation
treatment as income from shares by the taxation laws of the Contracting State of which the company making the
distribution is a resident.
4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident
of a Contracting State, carries on business in the other Contracting State, of which the company paying the
dividends is a resident, through a permanent establishment situated therein, or performs in that other Contracting
State independent personal services from a fixed base situated therein, and the holding or other corporate rights in
respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In
such case the provisions of Article 7 or 13, as the case may be, shall apply.
5. Where a company which is a resident of a Contracting State derives profits or income from the other
Contracting State, that other Contracting State may not impose any tax on the dividends paid by the company,
except insofar as such dividends are paid to a resident of that other Contracting State or insofar as the holding or
other corporate rights in respect of which the dividends are paid is effectively connected with a permanent
establishment or a fixed base situated in that other Contracting State, nor subject the company's undistributed profits
to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly
or partly of profits or income arising in that other Contracting State.
ARTICLE 10
(Interest)
1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that
other Contracting State.
2. However, such interest may also be taxed in the contracting State in which it arises and according to the laws
of that Contracting State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not
exceed 10 percent of the gross amount of the interest.
3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and derived by the
government of the other Contracting State, a political subdivision or local authority thereof, the Central Bank of that
other Contracting State or any financial institution wholly owned by that government, or by any resident of the other
Contracting State with respect to debt-claims indirectly financed by the government of that other Contracting State,
a political subdivision or local authority thereof, the Central Bank of that other Contracting State or any financial
institution wholly owned by that government, shall be exempt from tax in the first-mentioned Contracting State.
4. The term "interest" as used in this Article means income from debt claims of every kind, whether or not
secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular,
income from government securities, and income from bonds or debentures, including premiums or prizes attaching
to such securities, bonds, or debentures.
5. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident
of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a
permanent establishment situated therein, or performs in that other Contracting State independent personal services
from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected
with such permanent establishment or fixed base. In such case the provisions of Article 7 or 13, as the case may be,
shall apply.
6. Interest shall be deemed to arise in a Contracting State when the payer is the government of that Contracting
State itself, a political subdivision, a local authority or a resident of that Contracting State. Where, however, the
person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a
permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was
incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be
deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.
7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of
them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds
the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such
relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case the excess part
of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the
other provisions of this Agreement.
ARTICLE 11
(Royalties)
1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in
that other Contracting State.
2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the
laws of that Contracting State, but if the recipient is the beneficial owner of the royalties, the tax so charged shall not
exceed 10 percent of the gross amount of the royalties.
 3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use
of, or the right to use, any copyright of literary, artistic or scientific work, including cinematographic films or films
or tapes used for radio or television broadcasting, any patent, technical know-how, trademark, design or model, plan,
secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for
information concerning industrial, commercial or scientific experience.
4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident
of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a
permanent establishment situated therein; or performs in that other Contracting State independent personal services
from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively
connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or 13, as the
case may be, shall apply.
5. (a) Royalties will be deemed to arise in a Contracting State when the payer is the government of
that Contracting State itself, a political subdivision, a local authority or a resident of that Contracting State.
Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has
in a Contracting State a permanent establishment or a fixed base in connection with which the liability to
pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base,
then such royalties shall be deemed to arise in the Contracting State in which the permanent establishment
or fixed base is situated.
(b)Where under subparagraph (a) royalties do not arise in one of the Contracting States, and the
royalties related to the use of, or the right to use, the right or property in one of the Contracting States, the
royalties shall be deemed to arise in that Contracting State.
6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of
them and some other person, the amount of the royalties, having regard to the use, right, or information for which
they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the
absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such
case the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard
being had to the other provisions of this Agreement.
ARTICLE 12
(Gains)
1. Gains derived by a resident of a Contracting State from the alienation of real property referred to in Article 6
and situated in the other Contracting State may be taxed in that other Contracting State.
2. Gains from the alienation of movable (personal) property forming part of the business assets of a permanent
establishment which an enterprise of a Contracting State has in the other Contracting State, or of movable (personal)
property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the
purpose of performing independent personal services, including such gains from the alienation of such a permanent
establishment (alone or together with the whole enterprise) or such a fixed base, may be taxed in that other
Contracting State.
3. Gains derived by a resident of a Contracting State from the alienation of ships or aircraft operated in
international traffic and of movable (personal) property pertaining to the operation of such ships or aircraft shall be
taxable only in that Contracting State.
4. Gains from the alienation of shares of the capital stock of a company the property of which consists directly or
indirectly principally of real property situated in a Contracting State may be taxed in that Contracting State.
5. Gains from the alienation of shares other than those mentioned in paragraph 4 representing a participation of
25 percent in a company which is a resident of a Contracting State may be taxed in that Contracting State.
 6. Gains derived by a resident of a Contracting State from the alienation of any property other than that referred
to in paragraphs 1 through 5 and arising in the other Contracting State may be taxed in that other Contracting State.
ARTICLE 13
(Independent Personal Services)
1. Income derived by an individual who is a resident of a Contracting State in respect of professional services or
other activities of an independent character shall be taxable only in that Contracting State, unless he has a fixed base
regularly available to him in the other Contracting State for the purpose of performing his activities or he is present
in that other Contracting State for a period or periods exceeding in the aggregate 183 days in the calendar year
concerned. If he has such a fixed base or remains in that other Contracting State for the aforesaid period or periods,
the income may be taxed in that other Contracting State, but only so much of it as is attributable to that fixed base or
is derived in that other Contracting State during the aforesaid period or periods.
2. The term “professional services” includes, especially, independent scientific, literary, artistic, educational or
teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and
accountants.
ARTICLE 14
(Dependent Personal Services)
1. Subject to the provisions of Articles 15, 17, 18, 19 and 20, salaries, wages and other similar remuneration
derived by a resident of a Contracting State in respect of an employment shall be taxable only in that Contracting
State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such
remuneration as is derived therefrom may be taxed in that other Contracting State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in
respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State
if:
(a) the recipient is present in the other Contracting State for a period or periods not exceeding in
the aggregate 183 days in the calendar year concerned; and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other
Contracting State; and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer
has in the other Contracting State.
ARTICLE 15
(Directors’ Fees)
Directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a
member of the board of directors of a company which is a resident of the other Contracting State may be taxed in
that other Contracting State.
ARTICLE 16
(Artistes and Athletes)
1. Notwithstanding the provisions of Articles 13 and 14, income derived by a resident of a Contracting State as
an entertainer, such as a theater, motion picture, radio, or television artiste, or a musician, or as an athlete, from his
personal activities as such exercised in the other Contracting State, may be taxed in that other Contracting State.
 However, income derived by a resident of a Contracting State as an entertainer or athlete from activities
exercised in accordance with a special program for cultural exchange agreed upon by the governments of both
Contracting States shall be exempt from tax by the other Contracting State.
2. Where income in respect of personal activities exercised by an entertainer or an athlete in his capacity as such
accrues not to the entertainer or athlete himself but to another person, that income may, notwithstanding the
provisions of Articles 7, 13 and 14, be taxed in the Contracting State in which the activities of the entertainer or
athlete are exercised.
However, if those activities are exercised in accordance with a special program for cultural exchange agreed
upon by the governments of both Contracting States, the income so derived shall be exempt from tax by that
Contracting State.
ARTICLE 17
(Pensions and Annuities)
1. Subject to the provisions of paragraph 2 of Article 18, pensions and other similar remuneration paid to a
resident of a Contracting State in consideration of past employment shall be taxable only in that Contracting State.
2. Notwithstanding the provisions of paragraph 1, pensions and other payments made by the government, a
political subdivision or a local authority of a Contracting State under its social security system or public welfare plan
shall be taxable only in that Contracting State.
ARTICLE 18
(Government Employees and Pensions)
1. (a) Remuneration, other than a pension, paid by the government or a political subdivision or a
local authority of a Contracting State to an individual in respect of services rendered to that government or
subdivision or authority shall be taxable only in that Contracting State.
(b) However, such remuneration shall be taxable only in the other Contracting State if the services
are rendered in that other Contracting State and the individual is a resident of that other Contracting State who:
(i) is a national of that other Contracting State; or
(ii) did not become a resident of that other Contracting State solely for the purpose of
rendering the services.
2. (a) Any pension paid by, or out of funds created by, the government or a political or a local
authority of a Contracting State to an individual in respect of services rendered to that government or
subdivision or authority shall be taxable only in that Contracting State.
(b) However, such pension shall be taxable only in the other Contracting State if the individual is a
resident of, and a national of, that other Contracting State.
3. The provisions of Articles 14, 15, 16 and 17 shall apply to remuneration and pensions in respect of services
rendered in connection with a business carried on by the government or a political subdivision or a local authority of
a Contracting State.
ARTICLE 19
(Teachers, Professors and Researchers)
An individual who is, or immediately before visiting a Contracting State was, a resident of the other Contracting
State and is temporarily present in the first-mentioned Contracting State for the primary purpose of teaching, giving
lectures or conducting research at a university, college, school or other accredited educational institution or scientific
research institution in the first mentioned Contracting State shall be exempt from tax in the first mentioned
Contracting State for a period not exceeding three years in the aggregate in respect of remuneration for such
teaching, lectures or research.
ARTICLE 20
(Students and Trainees)
A student, business apprentice or trainee who is, or was immediately before visiting a Contracting State, a
resident of the other Contracting State and who is present in the first- mentioned Contracting State solely for the
purpose of his education, training or obtaining special technical experience shall be exempt from tax in that
Contracting State with respect to:
(a) payments received from abroad for the purpose of his maintenance, education, study, research
or training;
(b) grants or awards from a government, scientific, educational or other tax-exempt organization;
and
(c) income from personal services performed in that Contracting State in an amount not in excess
of 5,000 United States dollars or its equivalent in Chinese yuan for any taxable year.
The benefits provided under this Article shall extend only for such period of time as is reasonably
necessary to complete the education or training.
ARTICLE 21
(Other Income)
1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles
of this Agreement shall be taxable only in that Contracting State.
2. The provisions of paragraph 1 shall not apply to income other than that from real property as defined in
paragraph 2 of Article 6 if the recipient of such income, being a resident of a Contracting State, carries on business
in the other Contracting State through a permanent establishment situated therein, or performs in that other
Contracting State independent personal services from a fixed base situated therein, and the right or property in
respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In
such case the provisions of Article 7 or 13, as the case may be, shall apply.
3. Notwithstanding the provisions of paragraphs 1 and 2, items of income of a resident of a Contracting State not
dealt with in the foregoing Articles of this Agreement and arising in the other Contracting State may also be taxed in
that other Contracting State.
ARTICLE 22
(Elimination of Double Taxation)
1. In the People's Republic of China, double taxation shall be eliminated as follows:
(a) Where a resident of China derives income from the United States, the amount of the United
States income tax payable in respect of that income in accordance with the provisions of this Agreement
shall be allowed as a credit against the Chinese tax imposed on that resident. The amount of credit,
however, shall not exceed the amount of the Chinese tax computed with respect to that income in
accordance with the taxation laws and regulations of China.
(b) Where the income derived from the United States is a dividend paid by a company which is a
resident of the United States to a company which is a resident of China and which owns not less than 10
percent of the shares of the company paying the dividend, the credit shall take into account the United
States income tax payable by the company paying the dividend in respect of the profits out of which the
dividends are paid.
2. In the United States of America, in accordance with the provisions of the law of the United States, the United
States shall allow to a resident or citizen of the United States as a credit against the United States tax on income:
(a) the income tax paid to China by or on behalf of such resident or citizen; and
(b) in the case of a United States company owning at least 10 percent of the voting rights in a
company which is a resident of China and from which the United States company receives dividends, the
income tax paid to China by or on behalf of the distributing company with respect to the profits out of
which the dividends are paid.
For the purposes of this paragraph of this Agreement, the taxes referred to in paragraphs 1(a) and 2 of Article 2
shall be considered income taxes.
3. Income derived by a resident of a Contracting State which may be taxed in the other Contracting State in
accordance with this Agreement shall be deemed to arise in that other Contracting State.
ARTICLE 23
(Nondiscrimination)
1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any
requirement connected therewith which is other or more burdensome than the taxation and connected requirements
to which nationals of that other Contracting State in the same circumstances are or may be subjected. This provision
shall, notwithstanding the provisions of Article 1, apply to persons who are not residents of one or both of the
Contracting States.
2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other
Contracting State shall not be less favorably levied in that other Contracting State than the taxation levied on
enterprises of that other Contracting State carrying on the same activities. This provision shall not be construed as
obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and
reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own
residents.
3. Except where the provisions of Article 8, paragraph 7 of Article 10 or paragraph 6 of Article 11 apply,
interest, royalties and other disbursements paid by a resident of a Contracting State to a resident of the other
Contracting State shall, for the purposes of determining the taxable profits of the first-mentioned resident, be
deductible under the same conditions as if they had been paid to a resident of the first-mentioned Contracting State.
4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or
indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned
Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than
the taxation and connected requirements to which other similar enterprises of the first-mentioned Contracting State
are or may be subjected.
ARTICLE 24
(Mutual Agreement)
1. Where a person considers that the actions of one or both of the Contracting States result or will result for him
in taxation not in accordance with the provisions of this Agreement, he may, irrespective of the remedies provided
by the domestic law of those Contracting States, present his case to the competent authority of the Contracting State
of which he is a resident or, if his case comes under paragraph 1 of Article 23, to that of the Contracting State of
which he is a national. The case must be presented within three years from the first notification of the action
resulting in taxation not in accordance with the provisions of this Agreement.
2. The competent authority shall endeavor, if the objection appears to it to be justified and if it is not itself able
to arrive at a satisfactory solution, to resolve the case through consultation with the competent authority of the other
Contracting State, with a view to the avoidance of taxation which is not in accordance with this Agreement. Any
agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting
States.
 3. The competent authorities of the Contracting States shall endeavor to resolve by mutual agreement any
difficulties or doubts arising as to the interpretation or application of this Agreement. They may also consult
together for the elimination of double taxation in cases not provided for in this Agreement.
4. The competent authorities of the Contracting States may communicate with each other directly for the purpose
of reaching an agreement in the sense of paragraphs 2 and 3. To facilitate reaching a mutual agreement, the
competent authorities of both Contracting States may meet for an oral exchange of opinions.
ARTICLE 25
(Exchange of Information)
1. The competent authorities of the Contracting States shall exchange such information as is necessary for
carrying out the provisions of this Agreement or of the domestic laws of the Contracting States concerning taxes
covered by this Agreement insofar as the taxation thereunder is not contrary to this Agreement, in particular for the
prevention of fraud or evasion of such taxes. The exchange of information is not restricted by Article 1. Any
information received by a Contracting State shall be treated as secret and shall be disclosed only to persons or
authorities
(including courts and administrative bodies) involved in the assessment, collection, or administration of, the
enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by this
Agreement. Such persons or Authorities shall use the information only for such purposes. They may disclose the
information in public court proceedings or in judicial decisions.
2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the
obligation:
(a) to carry out administrative measures at variance with the laws and administrative practice of
that or of the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course of the
administration of that or of the other Contracting State;
(c) to supply information which would disclose any trade, business, industrial, commercial or
professional secret or trade process, or information the disclosure of which would be contrary to public
policy.
ARTICLE 26
(Diplomats and Consular Officers)
Nothing in this Agreement shall affect the fiscal privileges of diplomatic agents or consular officers under the
general rules of international law or under the provisions of special agreements.
ARTICLE 27
(Entry into Force)
Each of the Contracting States shall notify the other Contracting State in writing, through diplomatic channels,
upon the completion of their respective legal procedures to bring this Agreement into force. The Agreement shall
enter into force on the thirtieth day after the date of the latter of such notifications and shall take effect as respects
income derived during taxable years beginning on or after the first day of January next following the date on which
this Agreement enters into force.
ARTICLE 28
(Termination)
This Agreement shall remain in force indefinitely, but either Contracting State may terminate the Agreement by
giving notice to the other Contracting State in writing through diplomatic channels on or before June 30 in any
calendar year after five years from the date on which this Agreement enters into force. In such event, the Agreement
shall cease to have effect with respect to income derived during taxable years beginning on or after the first day of
January of the year following that in which the notice of termination is given.
Done at Beijing on the 30th day of April, 1984, in duplicate, in the Chinese and English languages, the two texts
having equal authenticity.
RONALD REAGAN
FOR THE GOVERNMENT OF THE UNITED STATES OF AMERICA
ZHAO ZIYANG
FOR THE GOVERNMENT OF THE PEOPLE'S REPUBLIC OF CHINA
PROTOCOL 1
PROTOCOL TO THE AGREEMENT BETWEEN THE GOVERNMENT OF THE
UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE PEOPLE'S REPUBLIC OF CHINA FOR
THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF TAX EVASION WITH RESPECT
TO TAXES ON INCOME
At the signing of the Agreement between the Government of the United States of America and the Government
of the People's Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with
Respect to Taxes on Income (hereinafter referred to as "the Agreement"), both sides have agreed upon the following
provisions which form an integral part of the Agreement:
1. This Agreement shall not restrict in any manner any tax benefit which is or may hereafter be accorded in a
Contracting State by the laws of that Contracting State or by any Agreement between the governments of the
Contracting States.
2. Notwithstanding any provision of the Agreement, the United States may tax its citizens. Except as provided in
paragraph 2 of Article 8, paragraph 2 of Article 17, and Articles 18, 19, 20, 22, 23, 24 and 26 of this Agreement, the
United States may tax its residents (as determined under Article 4).
3. The United States may impose its social security tax, its personal holding company tax and its accumulated
earnings tax notwithstanding any provision of this Agreement. However, a Chinese company shall be exempt from
the personal holding company tax or the accumulated earnings tax in the United States during a taxable year if
during that taxable year the company is wholly-owned, directly or indirectly, either by one or more individuals who
are residents of China (and who are not citizens of the United States) or by the Government of China or any wholly-
owned agency thereof.
4. The term "person" as defined in Article 3 of the Agreement shall include an estate or a trust.
5. In applying paragraph 2 of Article 4 of this Agreement, the competent authorities of both Contracting States
shall be guided by the rules contained in paragraph 2 of Article 4 of the United Nations Model Double Taxation
Convention between Developed and Developing Countries.
6. For purposes of paragraph 3 of Article 11 of this Agreement, it is agreed by both sides that, in the case of
royalties paid for the rental of industrial, commercial or scientific equipment, the tax shall be imposed on 70 percent
of the gross amount of such royalties.
7. It is agreed by both sides that the competent authorities of the Contracting States may through consultation
deny the benefits of Articles 9, 10 and 11 to a company of a third country if the company becomes a resident of a
Contracting State for the principal purpose of enjoying benefits under this Agreement.
 8. This Agreement shall not affect the application of the agreement between the two governments with respect to
mutual exemption from taxation of transportation income of shipping and air transport enterprises, signed at Beijing
on March 5, 1982.
Done at Beijing on the 30th day of April, 1984, in duplicate, in the Chinese and English languages, the two texts
having equal authenticity.
RONALD REAGAN
FOR THE GOVERNMENT OF THE UNITED STATES OF AMERICA
ZHAO ZIYANG
FOR THE GOVERNMENT OF THE PEOPLE'S REPUBLIC OF CHINA
NOTES OF EXCHANGE
Beijing, April 30, 1984
His Excellency:
Zhao Ziyang
Premier of the People’s Republic of China
Excellency:
I have the honor to refer to the Agreement between the Government of the United States of America and the
Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax
Evasion with Respect to Taxes on Income which was signed today (hereafter referred to as “the Agreement “) and to
confirm, on behalf of the Government of the United States of America, the following understanding reached
between the two Governments:
Both sides agree that a tax sparing credit shall not be provided in Article 22 of this Agreement at this time.
However, the Agreement shall be promptly amended to incorporate a tax sparing credit provision if the United
States hereafter amends its laws concerning the provision of tax sparing credits, or the United States reaches
agreement on the provision of a tax sparing credit with any other country.
I have the honor to request Your Excellency to confirm the foregoing understanding on behalf of Your
Excellency’s Government.
I avail myself of this opportunity to assure Your Excellency of my highest consideration.
Ronald W. Reagan
President of the United States of America
Beijing. April 30, 1984
His Excellency
Ronald W. Reagan
President of the United States of America
Excellency:
I have the honor to acknowledge receipt of Your Excellency’s Note of today’s date, which reads as follows:
“Excellency:
I have the honor to refer to the Agreement between the Government of the United States of America and the
Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax
Evasion with Respect to Taxes on Income which was signed today (hereafter referred to as “the Agreement “) and to
confirm, on behalf of the Government of the United States of America, the following understanding reached
between the two Governments:
Both sides agree that a tax sparing credit shall not be provided in Article 22 of this Agreement at this time.
However, the Agreement shall be promptly amended to incorporate a tax sparing credit provision if the United
States hereafter amends its laws concerning the provision of tax sparing credits, or the United States reaches
agreement on the provision of a tax sparing credit with any other country.
I have the honor to request Your Excellency to confirm the foregoing understanding on behalf of Your
Excellency’s Government.
I avail myself of this opportunity to assure Your Excellency of my highest consideration.”
I have the honor to confirm the understanding contained in Your Excellency’s Note on behalf of the Government
of the People’s Republic of China.
I avail myself of this opportunity to assure Your Excellency of my highest consideration.
Zhao Ziyang
Premier of the People’s Republic of China
PROTOCOL 2
PROTOCOL CONCERNING THE INTERPRETATION OF PARAGRAPH 7
OF THE PROTOCOL TO THE 1984 TAX AGREEMENT WITH THE
PEOPLE'S REPUBLIC OF CHINA
MESSAGE
FROM
THE PRESIDENT OF THE UNITED STATES
TRANSMITTING
THE PROTOCOL, SIGNED AT BEIJING ON MAY 10, 1986, CONCERNING THE INTERPRETATION OF
PARAGRAPH 7 OF THE PROTOCOL TO THE AGREEMENT BETWEEN THE GOVERNMENT OF THE
UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE PEOPLE'S REPUBLIC OF CHINA FOR
THE AVOIDANCE OF
DOUBLE TAXATION AND THE PREVENTION OF TAX EVASION WITH RESPECT TO TAXES ON
INCOME, SIGNED AT BEIJING ON APRIL 30, 1984
LETTER OF SUBMITTAL (Protocol 2)
DEPARTMENT OF STATE,
Washington, May 20, 1986.
The PRESIDENT,
The White House.
THE PRESIDENT: I have the honor to submit to you, with a view to its transmission to the Senate for advice
and consent to ratification, the Protocol Concerning the Interpretation of Paragraph 7 of the Protocol to the
Agreement between the Government of the United States of America and the Government of the People's Republic
of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on
Income, signed at Beijing on April 30, 1984. The new Protocol was signed at Beijing On May 10, 1986.
You signed the Agreement, with its related protocol and exchange of notes, at Beijing on April 30, 1984, and
sent them to the Senate for advice and consent to ratification on August 10, 1984. While the Agreement was
favorably reported out of the Senate Foreign Relations Committee in late 1985, some Senators expressed concern
that it lacked adequate "anti-treaty shopping" provisions and, as a consequence, the agreement has not been brought
to a full Senate vote. The new Protocol directly addresses these concerns by including rules which would prevent the
use of the income tax treaty as a conduit by third country residents to obtain unintended treaty benefits. As a further
related document, it should be given Senate advice and consent at the same time as the Senate advises and consents
to the Agreement and related documents that you signed at Beijing.
A technical memorandum explaining in detail the provisions of the Protocol is being prepared by the Department
of the Treasury and will be submitted to the Senate Committee on Foreign Relations.
Respectfully submitted,
GEORGE P. SHULTZ.
LETTER OF TRANSMITTAL (Protocol 2)
THE WHITE HOUSE, June 5,1986.
To the Senate of the United States:
I transmit herewith, for Senate advice and consent to ratification, the May 10, 1986, Protocol Concerning the
Interpretation of Paragraph 7 of the 1984 Protocol to the Agreement Between the Government of the United States
of America and the Government of the People's Republic of China for the Avoidance of Double Taxation and the
Prevention of Tax Evasion with Respect to Taxes on Income, signed at Beijing on April 30, 1984. I also transmit the
report of the Department of State on the new Protocol.
Senate consideration of the Agreement, which was transmitted for advice and consent to ratification by letter
dated August 10, 1984, has been delayed in light of the concern expressed that it lacked strong "anti-treaty
shopping" provisions. The 1986 Protocol remedies the situation by providing rules designed to prevent residents of
third countries from investing through China in order to get the benefits of the income tax treaty.
It is most desirable that this Protocol, together with the Agreement, the 1984 Protocol thereto, and the related
exchange of notes, be considered by the Senate as soon as possible and that the Senate give advice and consent to
ratification of these instruments.
RONALD REAGAN.
PROTOCOL CONCERNING THE INTERPRETATION OF PARAGRAPH 7 OF
THE PROTOCOL TO THE AGREEMENT BETWEEN THE GOVERNMENT OF
THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE
PEOPLE'S REPUBLIC OF CHINA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF TAX EVASION WITH RESPECT TO TAXES ON INCOME, SIGNED AT BEIJING ON
APRIL 30, 1984
 The Government of the United States of America and the Government of the People's Republic of China,
desiring to conclude a Protocol in addition to the Agreement between them for the avoidance of double taxation and
the prevention of tax evasion, and the supplementary Protocol attached thereto, have agreed as follows:
Both sides have agreed, with respect to the interpretation of Paragraph 7 of the Protocol to the Agreement, that
their understanding is as follows:
1. A person (other than an individual) which is a resident of a Contracting State shall not be entitled under this
Agreement to relief from taxation in the other Contracting State unless:
(a) (I) more than 50 percent of the beneficial interest in such person (or in the case of a company
more than 50 percent of the number of shares of each class of the company's shares) is owned, directly or
indirectly, by any combination of one or more of:
(A) individuals who are residents of one of the Contracting States;
(B) citizens of the United States;
(C) companies as described in subparagraph 1(b) of this protocol; and
(D) one of the Contracting States, its political subdivisions or local authorities; and
(ii) in the case of relief from taxation under Articles 9 (dividends), 10 (interest), and 11
(royalties), not more than 50 percent of the gross income of such person is used to make payments of
interest to persons who are other than persons described in clauses (A) through (D) of subparagraph (a) (I),
whether directly or indirectly; or
(b) it is a company which is a resident of a Contracting State and in whose principal class of shares
there is substantial and regular trading on a recognized stock exchange.
2. Paragraph 1 shall not apply if the establishment, acquisition and maintenance of such person and the conduct
of its operations did not have as a principal purpose the purpose of obtaining benefits under the Agreement.
3. For the purposes of paragraph 1 (b), the term "a recognized stock exchange" means:
(a) the NASDAQ System own by the National Association of Securities Dealers, Inc. and any
stock exchange registered with the Securities and Exchange Commission as a national securities exchange
for the purposes of the Securities Exchange Act of 1934; and
(b) any national securities exchange approved to be established by the Government of the People’s
Republic of China or its authorized institution; and
(c) any other stock exchange agreed upon by the competent authorities of the Contracting States.
4. Before a resident of a Contracting State is denied relief from taxation in the other Contracting State by reason
of paragraph 1, 2 and/or 3 the competent authorities of the Contracting States shall consult each other.
This Protocol is certified for addition to the Agreement and its supplemental Protocol by the undersigned.
Done at Beijing on the l0th day of May, 1986, in duplicate, in the English and Chinese languages, the two texts
having equal authenticity.
James A. Baker, III
Wang Bingqian,
Secretary of the Treasury State Councillor and
Minister of Finance
United States of America People’s
Republic of China