What happened
China's VAT law, which took effect on January 1 this year, has put the spotlight on 'deemed taxable transaction' rules. Tax experts have now addressed high-frequency questions from businesses, including whether promotional freebies in 'buy one, get one free' offers are taxable and whether goods transfers between headquarters and branches attract VAT.
Shi Zhengwen, director of the tax law research center at China University of Political Science and Law, said the key question is whether the transfer is gratuitous under the VAT law. In a typical promotional sale, the free gift is obtained only because of the purchase and its value is embedded in the total price, so it is not a free transfer and no VAT is due. However, if a consumer receives a gift without buying anything, that gift is a gratuitous transfer of goods and must be treated as a deemed taxable transaction, requiring the seller to pay VAT.
Li Xuhong, vice president of Beijing National Accounting Institute, explained that if a head office and its branches are located in different counties or cities, they usually file tax returns separately. But an internal administrative transfer where the assets remain with the same enterprise and no external economic benefit is generated, such as a Shandong company sending equipment to its own branch elsewhere, is no longer deemed taxable and no VAT is owed. She also noted that, with approval from a finance or tax authority at or above the provincial level, a head office may combine the output and input VAT of all branches and file a consolidated return with its local tax authority.
Why it matters
These clarifications give businesses a clearer compliance map: tax treatment depends on economic substance, not labels. Treating a tied promotional gift as a free gift, or treating an internal stock move as a sale, could create unexpected VAT costs or compliance risk.
As the VAT law is still new, companies may need to review their promotional offer structures and intra-branch transfer procedures to stay aligned with the deemed taxable transaction rules and avoid misreporting.
Key facts
China's VAT law took effect on January 1 of this year and its deemed taxable transaction adjustments have drawn taxpayer attention.
In 'buy one, get one free' promotions, gifts received due to a purchase are not considered gratuitous transfers and do not need to pay VAT, according to expert Shi Zhengwen.
Internal administrative transfers within the same company, such as moving equipment to a branch, are not deemed taxable transactions because the assets stay with the same entity and no outside economic benefit arises.
What to watch next
Companies should track how tax authorities apply the experts' reasoning to promotions that are not clearly linked to a purchase, as standalone giveaways remain taxable.
Further guidance may clarify what qualifies as an 'internal administrative transfer' and how consolidated VAT filing approvals are granted in practice, affecting how multi-branch firms manage their tax affairs.