Company: DDC
Filing Date: 2025-07-22
Form Type: F-3
Source: 0001213900-25-066342
Chunk: 116

Company: DDC Enterprise Ltd
Filing Date: 2025-07-22
Form: F-3
Chunk 116
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be subject to PRC corporate income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable
commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. SAT Circular
698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related
parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable
income of the transaction.

In February 2015, the
SAT issued SAT Circular 7, Announcement of the State Administration of Taxation on Several Issues Relating to Enterprise Income Tax on
Transfer of Assets between Non-resident Enterprises, which took effective on February 3, 2015, to replace the rules relating to indirect
transfers in SAT Circular 698. SAT Circular 7 has introduced a new tax regime that is significantly different from that under SAT Circular
698. SAT Circular 7 extends its tax jurisdiction to not only indirect transfers set forth under SAT Circular 698 but also transactions
involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, SAT
Circular 7 provides clearer criteria than SAT Circular 698 on how to assess reasonable commercial purposes and has introduced safe
harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Circular 7 also
brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable
assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing
of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC
entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance
over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable
commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such
indirect transfer may be subject to PRC corporate income tax, and the transferee or other person who is obligated to pay for the transfer
is obligated to withhold the applicable taxes, currently at a