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The PRC has entered into tax treaties with Hong Kong pursuant to which the PRC withholding tax rate on dividends derived in China can be reduced to 5% provided that such an enterprise holds more than 25% equity interest in the PRC company and qualifies as a beneficial owner as defined under the Circular on How to Interpret and Recognize the Beneficial Owner in Tax Treaties issued by the SAT in October 2009, or Circular 601. The PRC has also entered into tax treaties with other jurisdictions. In the event that we are treated as a PRC tax resident, dividends distributed by us to our non-PRC shareholders and ADSs holders whose jurisdictions have tax treaties with China providing for preferential withholding arrangements will not be entitled to the benefits under such withholding arrangements unless such holder is considered a beneficial owner under Circular 601.
See Item 3.D. Risk Factors Risks Related to Doing Business in China We may be required to withhold PRC income tax on the dividends we pay you (if any), and any gain you realize on the transfer of our common shares and/or ADSs may be subject to PRC tax if we are treated as a PRC resident enterprise.
U.S. Federal Income Tax Considerations
The following is a discussion of material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of Class A common shares or ADSs, but it does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular persons decision to own Class A common shares or ADSs. This discussion applies only to a U.S. Holder that owns Class A common shares or ADSs as capital assets for U.S. federal income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of the U.S. Holders particular circumstances, including alternative minimum tax consequences, any aspect of the Medicare contribution tax on net investment income and tax consequences applicable to U.S. Holders subject to other special rules, such as, but not limited to:
· certain financial institutions;
· dealers or traders in securities who use a mark-to-market method of tax accounting;
· persons holding Class A common shares or ADSs as part of a straddle, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the Class A common shares or ADSs;
· persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
· entities classified as partnerships or other pass-through entities for U.S. federal income tax purposes;
· tax-exempt entities, individual retirement accounts and Roth IRAs;
· persons that own or are deemed to own shares or ADSs representing 10% or more of our stock by vote or value;
· persons who acquired Class A common shares or ADSs pursuant to the exercise of an employee stock option or otherwise as compensation; or
· persons holding Class A common shares or ADSs in connection with a trade or business conducted outside of the United States.
If an entity that is classified as a partnership for U.S. federal income tax purposes holds Class A common shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding Class A common shares or ADSs, and partners in such partnerships, should consult their tax advisers as to the U.S. federal income tax consequences of owning the Class A common shares or ADSs.
This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations and the U.S.-PRC income tax treaty, or the Treaty, all as of the date hereof, any of which is subject to change, possibly with retroactive effect. It is also based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms.
For purposes of this discussion, a U.S. Holder is a person that for U.S. federal income tax purposes is a beneficial owner of Class A common shares or ADSs that is: