August 13, 2015 – The American Chamber of Commerce in China today urged the State Administration of Taxation to increase manpower in its Anti-Avoidance Division and ensure its reporting requirements for companies engaged in cross-border transactions are consistent with international practice. The report published today, entitled Coordinating Efforts to Tackle Cross-Border Tax Avoidance, focuses on five areas:
- Transfer Pricing
- Large Cross-Border Payments
- Treaty Qualification in Entrusted Investment Structures
- Anti-Treaty Shopping
- VAT Reform
“Since the mid-1990s, and accelerating after China joined the World Trade Organization (WTO), the Chinese government made an effort to reform and simplify its tax laws, standardize tax collection, and implement and enforce its tax system,” said James Zimmerman, Chairman of the American Chamber of Commerce in China. “All of these changes to China’s tax policy are constructive and positive so long as they are consistent with WTO obligations. AmCham China is hopeful that the Chinese government will apply the tax laws and regulations in a fair, uniform, and transparent manner, and we will be monitoring China’s enforcement record going forward on behalf of our member companies.”
The report, the latest in the Policy Spotlight Series, makes a series of recommendations:
- The State Administration of Taxation (SAT) should increase the number of employees in its Anti-avoidance Division.
- Any country-by-country reporting requirements that the SAT adopts should be consistent with base erosion and profit shifting (BEPS) standards.
- The amount of additional evidence requested by the Chinese tax authorities to authenticate services and royalties should be reasonable and not create an insurmountable hurdle in practice.
- The SAT and Ministry of Commerce should not set artificial limits on the absolute value of a royalty fee but, instead, assess the arm’s length nature of the royalty amount based on specific facts and circumstances.
- When a service rendered from overseas benefits a foreign affiliate more than the Chinese recipient, the Chinese tax authorities should allow a deduction for the portion of the service fees that are commensurate with the Chinese entity’s share of the total benefit, rather than denying the entire deduction.
- The SAT should broaden the scope of investment structures that are explicitly eligible for treatment in Bulletin 24 so that more legitimate investment arrangements in the financial sector can benefit from the relaxed rules on beneficial ownership.
- The SAT should decouple the general anti-avoidance rule from the beneficial ownership determination when evaluating whether treaty-withholding tax relief is available and, instead, rely on a principal purposes test to tackle treaty-shopping arrangements, thereby aligning itself with the globally agreed-upon approach.
Click below cover for downloading the report.
About AmCham China
The American Chamber of Commerce in the People's Republic of China is a non-profit, non-governmental organization whose membership comprises more than 3,800 individuals from over 1,000 companies operating across China. The chamber's nationwide mission is to help American companies succeed in China through advocacy, information, networking and business support services. AmCham China is the only officially recognized chamber of commerce representing American business in mainland China. With offices in Beijing, Tianjin, Dalian, Shenyang and Wuhan, AmCham China has more than 60 working groups, and holds more than 300 events each year. Visit: www.amchamchina.org
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Tel: (8610) 8519-0835