Insights

Crowell Welcomes

On September 28, 2023, the Cyberspace Administration of China (“CAC”) published the draft Provisions on Regulating and Promoting Cross-Border Data Flows (“Draft Provisions”) for public consultation.

The summer has been anything but slow in the People’s Republic of China. China is leaning into its regulation of emerging technologies, while attempting to strike a balance with its domestic economic priorities. In just the past few weeks, state authorities have issued a slew of draft measures and announced new initiatives – all with significant ramifications for businesses processing data within the PRC. From personal information processing to facial recognition to cross-border data transfers, what follows is a highlight reel of what you may have missed while you were away on vacation, with the comment period for many of these developments closing within the next few weeks.

On December 24, 2021, China’s National People’s Congress issued a draft revision (“Draft Revision”) to the Company Law of the People’s Republic of China (“PRC Company Law”) and made it available for public comment. The Draft Revision adds and amends about 70 articles to the PRC Company Law on the basis of the 13 chapters and 218 articles of the existing PRC Company Law (the “Existing Company Law”). This alert highlights some key revisions that could impact investors in companies located in China[1].

On September 24, 2021, the Chinese Ministry of Foreign Affairs ("MFA") released the Fact Sheet: U.S. Interference in Hong Kong Affairs and Support for Anti-China, Destabilizing Forces ("Fact Sheet") which sets out a comprehensive chronological list of events detailing the United States' interference in Hong Kong. Click here to read the official translation of the full Fact Sheet. 

On August 20, 2021, China’s national legislature passed the Personal Information Protection Law (“PIPL”), which will become effective on November 1, 2021. As China’s first comprehensive system for protecting personal information, the PIPL is an extension of the personal information and privacy rights enshrined in China’s Civil Code, and also a crucial element of a set of recent laws in China that seek to strengthen data security and privacy. Among other things, the PIPL sets out general rules for processing and cross-border transfer of personal information. A number of provisions, notably various obligations imposed on data processors, restrictions on cross-border transfer, and hefty fines, will have significant impact on multinational corporations’ HR activities, including recruitment, performance monitoring, cross-border transfers, compliance investigations, termination of employment relationships, and background checks.

On April 28, 2021, the Ministry of Commerce of China (“MOFCOM”) released an updated version of Guiding Opinion of the Ministry of Commerce on the Establishment of Internal Compliance Mechanism for Export Controls on Exporters of Dual-Use Items (“Order No. 10”) which was first published in August 2007 (“Order No. 69”). As an implementing rule of the Export Control Law (“ECL”), Order No. 10 aims to provide companies with “guidance and reference” in their establishment or enhancement of internal export compliance programs (“ECP”) to promote compliance under China’s new export control regime.

The China State Taxation Administration (“STA”) recently published its eleventh “China Advance Pricing Arrangement Annual Report (2019)” that summarized the circumstances under which the STA signed advance pricing arrangements (“APA”) and introduced the latest APA regulations and requirements for the implementation of the APA program in China. The report included data for the period from January 1, 2005 until December 31, 2019. In the United States, the Internal Revenue Service’s (“IRS”) Advance Pricing and Mutual Agreement program (“APMA”) issued its annual report on activities of the U.S. APA program during 2020. The two reports underline the importance of APAs as tax planning tools for multinational companies operating in China and the United States. The two tax authorities have been meeting regularly for years to discuss APA and competent authority cases, have developed a productive working relationship, and are handling an increasing number of cases.

As COVID-19 vaccination rates increase globally, governments across the world are developing and discussing COVID-19 vaccine passports or health certificates as a way to enable people to travel safely, for work or tourism, in the coming months. As multinational companies are navigating how to resume some sense of normalcy for employees to travel across borders, governments are beginning to provide a framework in which to facilitate travel. Several legal considerations arise, including around data sharing and privacy (especially cross-border), and employment and anti-discrimination protections. Because both public and private stakeholders have to date adopted largely individualized approaches, an increasingly fragmented global ecosystem for such programs is likely to further complicate data sharing and privacy concerns in particular. How these efforts evolve alongside the arc of the COVID-19 pandemic, which has recently been complicated by the emergence of COVID-19 variants, creates the need for stakeholders to proactively address such challenges in the near-term.

Audits on multinational companies by Chinese tax authorities slowed down during the COVID-19 pandemic and in response to the U.S.-China trade war since 2018 as part of the Chinese government’s tax reduction policy.  As the Chinese economy and international travel continue to recover, it is expected that Chinese tax authorities will begin increasing their enforcement actions in 2021 to recover lost tax revenue. 

On December 19, 2020, China’s National Development and Reform Commission (“NDRC”) and Ministry of Commerce (“MOFCOM”) released anticipated “Measures for the Security Review of Foreign Investments” (the “Measures”). These Measures, which implement China’s Foreign Investment Law that went into effect on January 1, 2020, and established the country’s new foreign investment regulatory framework, are effective on January 18, 2021.

Almost one year after the appearance of the novel coronavirus, the COVID-19 pandemic continues to set agendas for countries and multinational companies. More and more countries and jurisdictions have re-introduced lockdowns and restrictions on activities outside the home. Non-essential shops, bars and restaurants are closed again or have limited opening hours. Employees who may have begun the process of returning to the office are obliged to work from home again to the maximum extent.

Chinese companies, including Chinese subsidiaries of multinational companies, are seeing returns of previously exported goods for many COVID-19 related reasons, including the suspension of contractual obligations under force majeure provisions. China is now helping affected companies with new tax and duty relief. China Customs announced on November 2, 2020, that the State Council has approved tax rebates for goods returned due to COVID-19. For goods that were exported from January 1, 2020 to December 31, 2020, the exporters will not be required to pay import duties, import value-added tax (“Import VAT”), and consumption tax on goods that are returned to China within one year of export (“Qualified Returned Goods”). Export duties paid on the goods will also be refunded to affected exporters.

On November 2, 2020, the Chinese State Taxation Administration (STA) revealed that, for the first three quarters of 2020, government receipt of taxes and fees were reduced by RMB 1.366 trillion as a result of government policies to support prevention and control efforts of the COVID-19 pandemic and to promote economic and social development. This is not an insignificant number as the national tax receipt for the same period was less than RMB 12 trillion.

A proposed law issued by the People’s Republic of China (PRC) on October 21, 2020, the draft Personal Information Protection Law, seeks to impose restrictions on entities and individuals, including those operating outside of China, that collect and process personal data and sensitive information on subjects in China. The proposed law also provides for penalties up to RMB 50,000,000 ($7.4 million) or up to 5 percent of the entity’s or individual’s preceding year’s revenue. The draft law marks China’s first comprehensive system for the protection of personal information and sets forth general rules for the processing and transferring of personal information across China’s borders.

For the first time in nearly two decades, China is revamping its export control regime and issuing its first unified Export Control Law, which combines concepts from more than a dozen existing Chinese laws and related regulations. This alert summarizes the most significant changes from current Chinese export control practice, highlights what may be included in the pending Export Control Law, and comments on anticipated impact on businesses operating in China. We also provide some recommended approaches for companies with China operations (or rely on third parties in China) to consider in advance of implementation of the Export Control Law.

On May 28, 2020, the National People's Congress of the People's Republic of China issued the new Civil Code of the People’s Republic of China (“PRC Civil Code”) which will become effective on January 1, 2021. This new PRC Civil Code, which is the first comprehensive code legislating civil matters in China, will replace nine existing laws and regulations.

On September 23, 2020, the Ministry of Foreign Affairs of the People’s Republic of China (MFA) announced its decision to allow foreign nationals holding certain valid Chinese residence permits to enter China with no need to apply for new visas starting midnight, September 28, 2020. This marks a loosening of MFA’s policy to temporarily bar foreign nationals holding valid visas or residence permits from re-entering the country announced on March 26, 2020 (“March 26 Announcement”).