The Implementation of Special Tax Adjustments draft (“Discussion Draft”) was released by China’s State Administration of Taxation (SAT) on 17 September 2015 to update the existing Implementation of Special Tax Adjustments (Trial) draft (“Guoshuifa  No.2”).
The Discussion Draft makes reference to the recommendations in OECD’s Base Erosion and Profit Shifting (BEPS) Action Plans and other China-specific issues. It also incorporates some rules and principles of special tax adjustments stated in existing SAT circulars. Relevant parties were requested to proactively analyse the potential impact of the Discussion Draft on their TP strategies, tax compliance, existing transactions and business models, and submit their comments to the SAT before 16 October 2015.
Compared with the existing Guoshuifa  No.2, the key changes in the Discussion Draft include:
- Introduction of the three-tier TP documentation (TPD) requirement;
- Detailed procedures for special tax adjustments and investigations;
- Additional TP administration rules on equity transfers, intangibles, and intercompany services; and
- Refined rules for controlled foreign corporations
Announced on 7 January 2016, SAT Public Notice 2016 No.1 took immediate effect and clarified issues that arise from strengthening administration of export tax refund/exemption.
- When applying for an export tax refund/exemption for goods purchased but deemed to be self-manufactured, a group or manufacturing company held by it does not need to submit a copy of the export tax refund/exemption form or the qualification form to the tax officer in charge during filing if it needs to apply for tax refund/exemption for self-manufactured goods.
- When an enterprise withdraws its export tax refund/exemption application for undeclared exports or those already declared but have yet to receive a tax refund/exemption, this may be regarded as a waiver of the enterprise’s entitlement to the tax refund/exemption.
- Companies no longer need to submit import declaration forms when they apply for tax refunds/exemptions for re-exporting imported goods.
A revised circular on applications for the High- and New Technology Enterprise (HNTE) status (Guokefahuo  No.32, or “Circular 32”) was jointly issued by the Ministry of Science and Technology, Ministry of Finance and State Administration of Taxation on 4 February 2016. Compared with the previous version (Guokefahuo  No.172), the general principles remain the same, but several changes were made in the areas of HNTE recognition criteria, document requirements and supervision procedures.
Although Circular 32 relaxed the HNTE recognition requirements, it made document requirements and audit procedures more stringent. This shows that while the government will continue to encourage and support HNTE incentives, companies seeking HNTE status should actively plan and prepare to meet the requirements in advance.
SAT Public Notice 2016 No.7 was announced on 4 February 2016 to abolish the VAT invoice verification procedure for enterprises with Grade A taxpayer credit status. This notice will take effect from 1 March 2016.
Under the current VAT administration system, all enterprises are required to conduct a verification procedure for VAT invoices received from vendors. With the release of SAT Public Notice 2016 No.7, such a verification procedure is no longer required for enterprises with Grade A taxpayer credit status. Apart from this, other VAT filing procedures will remain unchanged.
China’s State Administration for Industry and Commerce and State Administration of Taxation jointly released a Supplementary Circular on 31 December 2015 (“the Circular”). The Circular states that when an existing registered enterprise’s organisation code certificate or tax registration certificate expires, it needs to apply for a new business licence (also called “3-in-1 business licence”) containing the uniform social credit code, which replaces the original business licence registration number, the enterprise’s organisation code and the tax registration number.
Previously, the organisation code and tax registration certificates were separate from the business licence, and expiry of any of the three items would not affect renewal of the others. With the integration of these items, the organisation code and tax registration certificates no longer exist. New businesses seeking to establish operations in China would be required to apply for the 3-in-1 business licence instead. Businesses that already hold the original business licence would also have to apply for the new 3-in-1 business licence if the organisation code, tax registration or licence expires.
Businesses should be aware that certain formalities with the relevant authorities are still required even if both certificates no longer exist. For example, filing with the tax authority is still necessary although there is no longer a tax registration certificate.
Establishment of 12 Pilot Zones to Promote Cross-border E-commerce
To promote cross-border e-commerce nationwide, the State Council of China has approved the establishment of 12 pilot zones in Tianjin, Shanghai, Chongqing, Hefei, Zhengzhou, Guangzhou, Chengdu, Dalian, Ningbo, Qingdao, Shenzhen and Suzhou.
Cross-border e-commerce is a relatively new breakthrough that supports the development of foreign trade. Foreign enterprises can sell their products directly to Chinese consumers rapidly through online platforms. E-commerce also facilitates the promotion of foreign products among Chinese consumers.
Existing companies in China applying for expatriates’ employment and residence permits have been required to renew their business licence with a new version of it since January 2016.
New Requirement for Online Individual Income Tax Filing
The Shanghai Tax Bureau updated the city’s online individual income tax (IIT) filing system in January 2016. The updated system requires social benefits data to be provided in addition to IIT figures. Employers are reminded to ensure the accurate calculation of social benefits to comply with China’s social benefits and IIT regulations.
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