If a parent company in the USA licenses its software program to its subsidiary in China, will that royalty payment be taxed?
Yes because that royalty is considered "income derived in China". Under the Detailed Implementing Rules for the Income Tax Law of the PRC Concerning Foreign-invested Enterprises and Foreign Enterprises, "income derived from sources in China" includes royalties obtained from "the provision for use in China" of patents, proprietary technology, trademarks, copyrights, etc. Under the Chinese Income Tax law, the payer of the royalties, i.e. the subsidiary in China, is usually the party responsible for withholding and paying the tax to the Chinese tax authorities.
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