China Tax & Investment News. 23 approvals on tax matters are now removed yet, not sure if it is good news. Introduction

Transcription

1 Issue No.CTIN May 2015 China Tax & Investment News 23 approvals on tax matters are now removed yet, not sure if it is good news Introduction In order to remove all of the approvals on non-administrative licensing matters ( 非行政许可审批, hereinafter referred to as the Approvals ), on 10 May 2015, the State Council released Guofa [2015] No. 27 (hereinafter referred to as Circular 27 ) to further clean-up 133 items that were subject to the Approval, among those, 49 were eliminated and 84 were treated as government internal matters and should be subject to internal approval procedures( 政府内部审批 ) 1. Under Circular 27, the Approval in relation to 23 tax relevant items is eliminated, i.e., the approvals are no longer required for taxpayers who involved in such matters. These matters include certain important applications like tax treaty benefits, special tax treatments for corporate restructuring, etc. This issue of China Tax and Investment News is to discuss tax matters related to Circular 27 in greater detail. Note: 1. China administrative approval system involves administrative licensing matters, internal approval and other approvals. Circular 27 aims to clean up all approvals in relation to non-administrative licensing matters. China Tax & Investment News 1

2 23 tax related approval items were eliminated Among the 133 items, Circular 27 eliminated Approvals for 23 tax related items, they include: Item No. in Circular Item Recognition of eligibility of integrated circuit (IC) enterprises and key software enterprises for preferential tax treatments under the State s plan BT exemption for institutions providing credit guarantees to small and mediumsized enterprises Recognition of qualifying charitable organizations through which charitable donations made are deductible for income tax purposes tax exemption for importation of seeds (seedlings), animal and poultry breeders, fish roe and fry, and wild animals and plants used for breeding verification of out-oftown business operations which is one of the sub-items of tax registration Approval National Development and Reform Commission, Ministry of Industry and Information Technology (MIIT), MOF, Ministry of Commerce (MOFCOM) and as joint approval MIIT and as joint approval Ministry of Civil Affairs (subject to review and confirmation of the MOF and ) Ministry of Agriculture Circular reference Guofa [2000] No. 18 (i.e., Notice regarding certain policies on encouraging the development of the software and IC industries), Guofa [2011] No. 4 ( Circular 4, i.e., Notice regarding certain policies for further encouraging the development of the software and IC industries) and Fagaigaoji [2012] No ( Circular 2413, i.e., Trial Measures on Recognition and Administration of Key Software Enterprises and IC Design Enterprises Under the State s Plan) (please refer to CTIE and CTIE for details of Circulars 4 and 2413) Guofa [2009] No.36 (i.e., Opinions for promoting the development of small and medium-sized companies) and Guofa [2012] No. 14 (i.e., Opinions for further encouraging the development of small and micro-sized companies) (please refer to CTIE and CTIE for details of these two circulars) Caishui [2008] No. 160 (i.e., Notice regarding issues related to the deduction of charitable donations for income tax purposes) and Caishui [2010] No. 45 ( Circular 45, i.e., Supplementary notice regarding issues related to the deduction of charitable donations for income tax purposes) (please refer to CTIE for details of Circular 45) Caiguanshui [2011] No. 76 (i.e., Administrative Measures on Exemption Policies for Importation of Seeds (seedlings), Animal and Poultry Breeders, Fish Roe and Fry, and Wild Animals and Plants Used for Breeding during the 12th Five-Year Plan period) (please refer to CTIE for details of this circular) State Council Order [2002] No. 362 (i.e., Detailed Implementation Rules for the Law of the People s Republic of China on Tax Collection and Administration) China Tax & Investment News 2

3 Item No. in Circular Item Recognition of simplified and unified tax filing periods applicable to remote areas Recognition of eligibility for export tax refund/exemption Alteration of eligibility for export tax refund/exemption Deregistration of eligibility for export tax refund/exemption Recognition of VAT Exempt, Credit and Refund status for qualifying member companies of a group company Recognition of tax refund status for research and development institutions purchasing domestic equipment registration and verification of record filings for the export of goods under petty trading arrangements in the border areas by foreign enterprises and individuals through export agents Approval Circular reference Order [2006] No. 16 (i.e., Administrative Measures for Collecting Taxes from Self-employed Industrial and Commercial Households on Fixed Amount during a Certain Period) Guobanfa [2004] No. 62 ( Circular 62, i.e., Notice regarding the retention of administrative approval procedures for certain non-administrative approval items) and Caishui [2012] No. 39 ( Circular 39, i.e., Notice regarding VAT and CT policies for the export of goods and services) (please refer to CTIE for details of Circular 39) Circular 62 and Announcement [2012] No. 24 ( Announcement 24, i.e., Administrative Measures on VAT and CT Collection for the Export of Goods and Services) (please refer to CTIE for details of Announcement 24) Circular 62 and Announcement 24 Circular 62 and Announcement 24 Circular 62 and Announcement [2011] No. 73 ( Announcement 73, i.e., Administrative Measures for Tax Refund related to the Purchase of Domestic Equipment by Research and Development Institutions) (please refer to CTIE for details of Announcement 73) Circular 62 and Announcement [2013] No. 12 ( Announcement 12, i.e., Administrative Measures on VAT and CT Collection for the Export of Goods and Services) (please refer to CTIE and China Indirect Tax Alert Issue No for details of Announcement 12) China Tax & Investment News 3

4 Item No. in Circular Item including vehicles in the catalogue which introduces vehicles eligible for Vehicle Purchase Tax (VPT) exemption VPT exemption on nontransport vehicles with fixed devices VPT exemption for buses and electric buses recognition, alteration and termination of designated shops in Hainan where foreign tourists can purchase goods eligible for tax refunds Recognition of tax refund status for enterprises engaging in the production of ethylene and aromatic hydrocarbons nonresidents eligibility for tax treaty benefits Examination and approval for whether the cost allocation agreements of enterprises are based on the arm s length principle Approval Order 33 and the Commerce Authority of Hainan province as joint approval Circular reference Order [2014] No. 33 ( Order 33, i.e., Measures for VPT Collection and Administration) (please refer to CTIE for details of Order 33) Guoshuifa [2012] No. 61 (i.e., Notice regarding several issues related to the VPT exemption for buses and electric buses purchased by urban public transport companies) Announcement [2010] No. 28 (i.e., Administrative Measures for the Pilot Run of Tax Refunds on Goods Purchased by Foreign Tourists in Hainan) Announcement [2012] No. 36 (i.e., Provisional Measures for CT Refund/exemption on Naphtha and Fuel Oils Used for the Production of Ethylene and Aromatic Hydrocarbons) Circular 62 and Guoshuifa [2009] No. 124 ( Circular 124, i.e., Administrative Measures for Non-residents Enjoying Treaty Benefits (Trial)) (please refer to CTIE and International Tax and Transaction Tax Bulletin Issue No for details of Circular 124) Guoshuifa [2009] No. 2 (i.e., Implementation Measures for Special Tax Adjustments (Trial)) (please refer to Transfer Pricing Tax Alert Issue Nos , and ) China Tax & Investment News 4

5 Item No. in Circular Item enterprises eligibility for special tax treatments (under special restructuring) preferential CIT treatments of accelerated depreciation methods or a shortened depreciation life for qualified fixed assets record filings for CIT preferential treatment for gains derived from agriculture, forestry, animal husbandry and fishery projects by enterprises the practice of certified tax agents Approval Circular reference Caishui [2009] No. 59 (Circular 59) and Announcement [2010] No. 4 ( Announcement 4, i.e., Administrative Measures for Company Restructuring for CIT Purposes) (please refer to CTIE for details of Announcement 4) Guoshuifa [2009] No. 81 (i.e., Notice regarding issues related to CIT treatment of accelerated depreciation on fixed assets) (please refer to CTIE for details of this circular) Announcement [2011] No. 48 (i.e., Notice regarding the implementation of CIT preferential treatment for qualifying agricultural, forestry, animal husbandry and fisheries projects), Caishui [2011] No. 26 (i.e., Supplementary notice regarding the scope of preliminary processing of agricultural products that qualify for CIT preferential treatment) and Guoshuihan [2009] No. 255 (i.e., Supplementary notice regarding the administration of CIT preferential treatments) (please refer to CTIE , CTIE and CTIE for details of these three circulars) Order [2005] No. 14 (i.e., Interim Measures for the Administration of Certified Tax Agents) Good news or bad? It is not the first time that the Chinese government promulgated regulations to clean-up the Approvals. In April 2014, the State Council released Guofa [2014] No. 16 (hereinafter referred to as Circular 16 ) that called for all of its subordinate departments/ to launch a clean-up campaign with an aim to eliminate the Approvals or gradually transforming certain Approvals to administrative licensing ( 行政许可 ) or internal approval items within government so that the category of the Approval could be cut out. The Approvals stipulated in Circular 16 involved two categories of approvals: one deals with the applications raised by individuals, legal persons or other entities, i.e., general public; the other deals with the applications raised by local governments or departments, i.e., within governments. Under Circular 16, the items associated with the applications lodged by general public were then required to be removed within one year. China Tax & Investment News 5

6 In response to Circular 16, Circular 27 removed a list of the Approvals and changed the way how certain items approved, i.e., adopting internal approval process while the applicants are governments or themselves. It may reflect the Chinese government s intention to improve administrative efficiency and restrict discretionary power for certain government. Obviously, the Chinese government has removed most of approvals on non-administrative licensing matters already and may eventually eliminate this category of approval. All tax related items under Circular 27 fall under the scope of removal. Such removals include the approval in relation to tax treaty benefits of non-residents, qualifying special tax treatment for corporate restructuring, certain tax preferential treatments under current Corporate Income Tax (CIT) regime, etc.. Although it looks like simplification of process, it is indeed hard to conclude that the move is good. The removal of approvals for the prescribed tax matters may not mean that the relevant tax matters no longer require verifications; further regulations may come into place to clarify the administration going forward. In the absence of new procedures, taxpayers could be taking risk when formal approvals or confirmations from tax are not available; it will be particularly challenging on judgmental matters like whether one qualifies for treaty benefits or whether a restructuring qualifies for special tax treatments. Before the promulgation of Circular 27, taxpayers could gain certainty through formal filing/applications. According to Circular 59, enterprises qualifying for and choosing special tax treatment shall perform filing-forrecord ( 备案 ) to demonstrate their eligibility. The subsequent Announcement 4 stated that enterprises can obtain the confirmation from tax if they consider necessary. Circular 27 only serves as a general guideline; it does not clarify detailed administration process going forward, such as whether filing-for-record is required or any other procedures shall be followed. In this case, with the Approval being removed by Circular 27, written confirmation from tax to secure the special tax treatment could become remote; yet, taxpayers would need to collect sufficient evidence to prove their compliance. Non-residents claiming tax treaty benefits in relation to dividends, interests, royalties and capital gains could be another challenging area. Circular 124 was the circular formulating procedures for tax treaty benefits applications; with the enforcement of Circular 27, formal approval is no longer required. Nevertheless, it may not be unreasonable to infer that filing-for-record may become the process for claiming treaty benefits given anti-avoidance is still on the top of the agenda of tax. This can be evidenced by the recent Shuizongfa [2015] No. 60 which aims to create friendly environment supporting the national strategy of One Belt One Road, a direction to shift approvals to filing-for record process in relation to treaty benefit claims was mentioned. Similar examples also include the recognition of qualified software and IC enterprises, other tax preferential treatments under current CIT regime, etc.. Without formal verification and confirmation, taxpayers have to assume the primary responsibility to prove their eligibility, or else significant tax risk can arise. What else is uncertain? Similar to previous regulations announced by the State Council, Circular 27 only laid down guiding principles, leaving room for government to further interpret. Circular 27 could give rise to significant uncertainties on tax positions that may better be supported by formal approvals. As a normal practice, following the promulgation of the State Council s instruction, government may publish further rules that are usually more detailed and specific, taxpayers should therefore watch out for any further developments either at the state or local levels. With that, it is not easy to predict whether more lenient or stringent administration would be introduced or more discretion powers are left to in-charge tax at local levels. In addition, a list of items subject to approval was announced by the in its announcement [2014] No. 10 (Circular 10) released in February The list contained items subject to either administrative licensing or the Approval. In view of the determination of Chinese government in regard to elimination of all the Approvals, it is rather uncertain on whether those subject to the Approvals under Circular 10 but not included in the Circular 27 list shall also be cancelled, or they will be transformed to other administrative measures; such as the approval of overseas-registered China residents, tax preferential treatment in western areas and preferential treatment for technology transfer, etc.. Taxpayers should watch out on any development in these areas as well. China Tax & Investment News 6

7 Conclusion Circular 27 appears to relax the administration for 23 tax matters, which however does not mean tax will neglect supervision over these matters. Instead, it could mean the focus of tax administration is now shifted to post-transaction inspections; which is in line with many other countries practices that the proof of tax compliance always rest with taxpayers and they have to take the consequence on non-compliance. That is to say, tax will assume their administrative function on tax matters through routine administration measures or more frequent and thorough tax inspections. Enterprises are recommended to proactively communicate with the respective government or tax practitioners with regards to matters stipulated in Circular 27 to understand the changes that may now be put in place. As mentioned, subsequent rules may be further announced, taxpayers should stay tuned on any development to ensure compliance. We shall keep you posted. China Tax & Investment News 7

8 Contact us For more information, please contact your usual Ernst & Young contact or one of the following of Ernst & Young s China tax leaders. Office Tax Leaders Henry Chan (Beijing) henry.chan@cn.ey.com Alan Lan (Tianjin) alan.lan@cn.ey.com Samuel Yan (Dalian) samuel.yan@cn.ey.com Andy Chen (Qingdao) andy.chen@cn.ey.com Vickie Tan (Shanghai / Wuhan) vickie.tan@cn.ey.com Audrie Xia (Suzhou) audrie.xia@cn.ey.com Patricia Xia (Hangzhou) patricia.xia@cn.ey.com Chuan Shi (Chengdu) chuan.shi@cn.ey.com Rio Chan (Guangzhou / Xiamen) rio.chan@cn.ey.com Lawrence Cheung (Shenzhen) lawrence-f.cheung@cn.ey.com Clement Yuen (China South) clement.yuen@cn.ey.com Service Line Tax Leaders Andrew Choy (International Tax and Transfer Pricing) andrew.choy@cn.ey.com Becky Lai (Tax policy) becky.lai@hk.ey.com David Chan (Transaction Tax) david.chan@hk.ey.com Paul Wen (Human Capital) paul.wen@hk.ey.com Robert Smith (Indirect Tax) robert.smith@cn.ey.com Greater China Tax Leader Walter Tong walter.tong@cn.ey.com Author China Tax Center Jane Hui jane.hui@hk.ey.com China Tax & Investment News 8

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