The China State Administration of Taxation (SAT) has recently responded to some hot questions in interpreting the coronavirus-affected tax treaty clauses and has taken a conces-sion view. In the SAT’s response, it explains that, if an individual has to change his/her place of residence due to COVID-19 control measures and has become a resident in both places, such a temporary stay should not usually cause a person to relocate his or her permanent home or centre of vital interests. Thus, it should not affect residency under a tax treaty.

However, the above interpretation may not work if the individual is a Chinese national. For example, a German company has a Chinese employee who should work in Germany but who stays in China due to the coronavirus and is working remotely from China for the German company. Even after the coronavirus crisis, the employee stays in China and works remotely from China for the German company.

The individual is a Chinese national and spends most of his/her time in China, which gives strong reasons to Chinese tax authorities to treat him/her as a Chinese tax resident. There-fore, his/her worldwide income is very likely to still be taxed in China, both during the coronavirus period and also afterwards.

If he/she is also taxed in Germany, the IIT paid in Germany may be deducted from his/her China tax; however, the deductible amount shall not exceed the tax payable amount computed by the Chinese tax calculation method for the Germany-sourced income (known as the tax credit limit). If the German tax paid is less than the tax credit limit, the difference should be paid to the Chinese tax authority; if the German tax paid is above the tax credit limit, the excess cannot be deducted from the Chinese tax payable for the current tax year, but it can be carried forward to the tax credit limit for the same country (region) in the next five tax years.

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