5 New Important China Customs & Trade Developments

Transcription

1 5 New Important China Customs & Trade Developments Hosted by United States Fashion Industry Association (USFIA) & October 13, :00 A.M. ET/7:00 A.M. PT

2 Today s Speaker Derek Lee Partner Worldtrade Management Services

3 Do you have a question? During the webinar, all attendees will be assigned to listenonly mode. Please use the Questions box on your dashboard to ask a question during the webinar.

4 Q u e s t i o n s? Please use the Questions box on your dashboard on the right side of your screen. You can also ask a question after the webinar. info@usfashionindustry.com Phone:

5 Recent Key China Customs and Trade Developments October 13, 2016

6 Your speaker today Derek Lee Partner Worldtrade Management Services Tel: 86 (21)

7 Agenda Topic 1 Warm-up 2 New Declaration Disclosure Requirements 3 China BEPS Customs Valuation Implications 4 Recent Developments on Royalties and License Fees 5 New Circular on Customs Audit and Voluntary Disclosure 6 China ecommerce Regulatory Developments 7 Conclusion 7

8 Warm up 8

9 Warm up China Consumption Still Kicking Slower growth of China attracted much of the attention For first 7 months of 2016, consumption up nominally by 10.2% 1 predicts growth in consumption for next 5 years: ~9% gradually decelerating to ~7% 2 Incremental gain > entire consumer economy in Britain or Germany today 3 1. National Bureau of Statistics of China 2. June 2016 report: The Disruptive Face of the Retail and Consumer Products Sector in China and Hong Kong 3. The Economist 30 April

10 Warm up Tougher Regulatory Environment High-profile cases perceived to have exploited outdated tax systems for tax avoidance. WTO mid-year report global increase in trade restrictions and protectionist sentiment. OECD published BEPS and China issued local version. Optimizing supply chain to meet today s consumer demands would require good grasp of new requirements. Companies audited by China Customs in the past year based on 's latest China customs & international trade survey: 71% 10

11 Warm up Areas of Attention New Disclosures BEPS Customs Valuation Royalties Audit & Voluntary Disclosure ecommerce Over half of surveyed companies audited by Customs suffered financially and some suffered other consequences such as disruptions to the supply chain as well. Passing customs audit/investigation not happen by accident discipline to stay ahead and proactively addressing issues in advance required. 11

12 New Declaration Disclosure Requirements 12

13 New Declaration Disclosure Requirements Key points Deletions and adjustments 注 ** Removed declaration items that were subject to outdated legal basis or without any supervision meaning. Adjusted relevant declaration fields to align with current laws. Supplemental Information The revision includes supplemental information from the various related regulations that have come into force since the 2008 update. Additions Newly added confirmations on special relationship, arm s length pricing and royalty payments. 13

14 New Declaration Disclosure Requirements Relationship definitions Regulation Interpretation Buyer and seller are family member Spouses, relatives within three generations and marriage Buyers and sellers are senior staff members or directors of a business relationship One party directly or indirectly control the other Buyer or seller are directly or indirectly controlled by another party Buyer or seller directly or indirectly controlled by another party One party directly or indirectly own/control/hold more than 5% of other party ordinary share (with voting right) Senior staff refers to key management personnel who have authority and responsibility for the planning, directing and controlling activities of the enterprise. Control is the power to influence the financial and operating decisions. One party is staff or director Senior staff refers to key management personnel who have authority and responsibility for planning, directing and controlling the activities of the enterprise personnel. Buyer and seller are of the same partnership <People s Republic of China s Partnership Law> 14

15 New Declaration Disclosure Requirements Transaction Value confirmation - matching one of the following test values: Identical goods Similar goods Deductive Computed Fallback 15

16 New Declaration Disclosure Requirements Side Effect Less well known side effect companies are expected to exercise "due care" and to have supporting readily available. Transfer pricing study sufficient to demonstrate arm s length pricing? as Customs follows different rules, this may on the contrary lead to more questions. Risk of being challenged for the more serious offence of misdeclarations. To address this risk, a complex approach may not necessarily be required documentation justifying the import prices based on customs valuation principles in advance should mitigate the risk to a certain degree and generally well worth the resources. 16

17 New Consumption Tax for Cosmetics China earlier announced some changes to the consumption tax for cosmetics. Cosmetic products now divided into high-end and general categories. For high-end cosmetic products, the consumption tax rate would be reduced from 30% to 15%, and for general cosmetic products, would be reduce to 0% with effect from 1 October Import price plays a part in the determination of high-end/general categorisation - important to implement measures to protect its long-term application, e.g., by documenting justifications for the high-end/general classification to mitigate risk of future Customs disputes. 17

18 New Declaration Disclosure Requirements Verification of Royalty Payment Royalty Right Common Issues What if there is a royalty agreement in place but no royalty was paid out due to not meeting sales requirements? If Customs determines that the royalty payment should be included in the dutiable value, should the tax be paid at the time of import or retrospectively? Patent Proprietary Technology Trademark Right Copyright Distribution, Sales Right What should the goods be declared if the royalty was determined to be nondutiable in previous valuation queries or audits? 18

19 Customs Valuation Implications on China BEPS 19

20 Customs Valuation Implication on New TP BEPS Requirements in China Introduction to BEPS OECD An OECD Initiative Born out of a growing concern about how large multinational enterprises aggressive tax minimisation that led to base erosion and double non-taxation Generally described as arrangements minimising taxable profits in high tax jurisdictions, with such profits either disappearing for tax purposes, or arising in lower (or no) tax jurisdictions. To formulate a set of international tax rules/principles to combat BEPS and which can then be implemented by individual countries. Fifteen key areas for action to address BEPS are identified in the OECD s action plan. China Implemented a local version of BEPS The SAT released Public Notice Regarding Refining the Reporting of Related Party Transactions and Administration of Transfer Pricing Documentation on July 13 th providing new transfer pricing compliance requirements in China Substantial changes on Transfer Pricing Documentation and Reporting of Related Party Transactions. It outlines the new transfer pricing compliance requirements in China including: 1) Annual Reporting Forms for Related Party Transactions (RPT Forms) 2) Country-by-Country Reporting (CbCR) 3) Transfer Pricing Documentation (TPD) 20

21 Customs Valuation Implication on New TP BEPS Requirements in China 2016 Survey During customs valuation audits and investigations, the most common challenge is the arm s length nature of the import price. 21

22 Customs Valuation Implication on New TP BEPS Requirements in China Highlights of key Customs implications TP Documentation 3 tier TP documentation approach: Local files value chain analysis, intra-group services and outbound foreign investments Master file global business and tax/finance related information Special file intra-group service arrangements, cost sharing arrangements, etc. Customs Valuation Customs often requests for TP documentation during audit Much more information than before information previously unknown to Customs may cause a reassessment of the customs value Additional details in relation to intra-group services and service fee arrangements may have customs duty implications 22

23 Customs Valuation Implication on New TP BEPS Requirements in China Local Specific Advantages Market premium and location savings Also group synergies, marketing intangibles, etc. Customs How will this be compared to test value, commercial level analysis, etc.? In absence of any guidance, if import price required to drop, Customs may be reluctant to accept simply because TP approach is changed 23

24 Customs Valuation Implication on New TP BEPS Requirements in China Intangibles income analysis Functions Assets Employed Customs Valuation Development Exploitation Risks Assumed Maintenance Value enhancement Promotion Capital & HR Protection Potential changes in royalties / licence fees Dutiable? Related to goods Condition of sale 24

25 Customs Valuation Implication on New TP BEPS Requirements in China Highlights Due to the high profile nature of previous cases and the unprecedented powers given to governments, BEPS has attracted a lot of attention. Some companies have already deployed sizeable resources. However, it appears that the related customs valuation implications are generally under recognised and unaddressed by multinationals. Taxpayers are required to disclose detailed information, e.g. the group's value chain such as financial positions of overseas group companies; intra-group services; and for intangibles is also required which may lead to changes to royalty, licence fee arrangements, etc. All of these may have important customs and trade implications which require addressing in advance. 25

26 Recent Customs Audit Focus on Royalties and License Fees 26

27 Recent Customs Audit Focus on Royalties and License Fees National Audit Office requested Customs to audit large amounts of overseas payment. 1 GAC obtained a list of entities with large amounts of overseas payment from SAFE. Nationwide Customs Special Audit in 2016 Customs across the nation launched special audit to particularly review non-trade payment to overseas

28 Recent Customs Audit Focus on Royalties and License Fees Sample of Self-assessment Form Customs requests disclosure of the following information: Royalty payments Other overseas non-trade payments Other payments related to imported goods List of imported goods containing licensed royalties Special equipment 28

29 Recent Customs Audit Focus on Royalties and License Fees Trademark Payment Distribution Fee Know-how Product trademark, logo, signage, commercial name used on trading document, etc. Imported with trademark affixed? Ready to sell after affix of trademark? Contain trademark right upon importation and can be sold with trademark affixed after minor processing? License fee for distribution right, franchise fee, etc. Imported ready for sale? Imported ready for sale after minor processing? Business operation knowhow, etc. Import goods containing patent/know-how? Import goods produced using patent methods or know-how? Import goods specially designed or manufactured to perform the patent/know-how? Are you sure your royalties are not dutiable? 29

30 New Circular on Customs Audit and Voluntary Disclosure 30

31 New Circular on Customs Audit and Voluntary Disclosure Key changes 1. Formalising voluntary disclosure Where companies, directly related to the importation/exportation of goods, voluntarily report their violations to Customs and accept the corresponding customs consequences should be subject to lenient treatment or reduced administrative penalties. 2. Involvement of external professional firms by Customs and companies in customs audit In conducting customs audits, Customs or the applicant companies can appoint qualified external agencies to certify enterprises; findings from the agencies that are recognized by Customs can be used as reference for enterprise credit ranking purposes. 3. Increased importance of enterprise credit ranking Customs will determine focus areas for customs audits based on the specific situations of the imported and exported goods, as well as the credit ranking and risk profile of the companies directly related to the import and export of goods. 31

32 New Circular on Customs Audit and Voluntary Disclosure Implications In the past, companies may be reluctant to disclose issues identified say in internal trade compliance reviews due to lack of a formal process. Companies should consider establishing a compliance program that includes identification and voluntary disclosure of common issues resulting from normal trading activities in a timely manner, such as: Daily import/export declaration errors/issues Discrepancies in Processing Trade Customs Handbook Issues identified during internal audits Issues identified during periodic compliance reviews Issues identified in due diligence Others 32

33 New Circular on Customs Audit and Voluntary Disclosure Uncertainties Customs may need to provide further guidance on the implementation of the program, such as: Clarifications on the determination of cases available for lenient treatments or reduced penalties Availability of the program for situations such as issues disclosed during customs audits that fall outside of the audit scope or unidentified by Customs, Identification of any particular situations where lenient treatments and reduced penalties would not be applicable, etc. 33

34 China e-commerce Regulatory Developments 34

35 China e-commerce Regulatory Developments Policy highlights A series of new policies were issued by the various relevant authorities, setting a new era to China cross-border e-commerce: 16 March 2016 The State Council Tariff Committee first issued the <Notice on Adjustment of Import Taxes for Inbound Goods> (Tax Council (2016) No. 2) 24 March 2016 MOF, GAC, SAT jointly issued the <Notice on Crossborder e-commerce Imports Tax Collection Policy> (Cai Guan Shui (2016) No. 18) 6 April 2016 MOF, NDRC, GAC, SAT and other 11 departments jointly issued the <Announcement on Permitted Goods List for Crossborder e-commerce Imports> (MOF Joint Announcement (2016) No. 40) 6 April 2016 GAC issued the <Announcement on the Supervision Measures of Crossborder e-commerce Retail Imports> (GAC Announcement (2016) No. 26) 15 April 2016 MOF, GAC, SAT and other 13 departments jointly issued the <Announcement on Permitted Goods List (2 nd Batch) for Crossborder e-commerce Imports> (MOF Joint Announcement (2016) No. 47) 24 May 2016 GAC issued <Notice on Implementation of Administration on Cross-border E- commerce Retail Importation > (Shubanfa (2016) No.29) Implemented on 8 April 2016 Implemented on 16 April 2016 Implemented on 24 May

36 China e-commerce Regulatory Developments Qualifications for new China e-commerce rules Cross-border e-commerce is only applicable to goods imported from overseas that fall under the Permitted Goods List for cross-border B2C e-commerce imports satisfying the stated quantitative and non-quantitative requirements. Non-quantitative requirements:- 1 Documentation + Customs e-commerce network Transactions arranged via e-commerce platform networked with Customs and a full set of information of purchase, payment and logistics is made available. 2 Delivery / Courier Company + Legal responsibilities Transactions arranged via ecommerce platform without networking with Customs but the courier company is able to provide the full set of information of purchase, payment and logistics and is committed to take responsibilities to the ecommerce transactions and the goods. Note: The previous regulations would continue to apply for all other e-commerce imports of personal items that do not meet the requirements. 36

37 China e-commerce Regulatory Developments Cross-border e-commerce opportunities broadened goods range List includes 1,142 goods at the 8-digit HS code level, including the following: Clothing and shoes Coats, suits, shirts, pajamas, dresses, jackets, sportswear, tights, scarves, ties, glove Baby clothes Leather Shoes, Sports shoes Home Appliances Air purifier Juicer, microwave, oven, water dispenser Computers, mobile phones, audio headsets, SLR Electric shavers, hair dryer Bags Clothing and shoes Food and drink Some cosmetics Food and drinks Seafood, cheese, jelly, spices, rice, fish oil, cooking oil Dried fruit, vitamins, canned goods Tea, Juice Small packs wine Infant formula Some cosmetics (first time import registration required) Perfumes, essential oils Face powder Eye cosmetics Lip cosmetics Shampoos, hair care products Bags, home decoration, watches Leather, recycled leather bags, handbags, wallets Wood furniture, wallpaper Mechanical watches, electronic watches Home Appliances Others Other Products Diapers Children tools Thermos cup Toothpaste Sunglasses, contact lenses Certain medical equipment 37

38 China e-commerce Regulatory Developments Cross-border e-commerce opportunities duty rate changes Duty rate changes Limit? Individual and transaction thresholds Limit per transaction: RMB 2,000 Annual individual transaction limit: RMB 20,000 taxable amount Applicable duty rate? The duty rate on cross-border e-commerce imports within the limit is temporarily set at 0% Import VAT and consumption tax exemption abolished, and temporarily collected at 70% of the taxable amount Inseparable items that exceed any of the limits will be taxed as General Trade based on the Transaction Value 38

39 China e-commerce Regulatory Developments Cross-border e-commerce opportunities duty rate changes Category Common Goods Postal Tax (Note*) Cross-border e-commerce Goods Tax Duty Consumption Tax VAT Books, newspapers, journals, video materials of educational use; computers, video camcorders, digital cameras and other information technology products; food and beverage; gold and silver; furniture; toys, games product, festive or other entertainment articles Books Laptops 15% 0% Sports goods (excluding golf balls and equipment), fishing supplies; textiles and manufactured goods; television cameras and other electrical appliances; bike; other goods not included in heading 1 or 3 Clothing Bicycle 30% 0% (Dutiable value + Duty + Consumption tax) x 17% x 70% = (Dutiable Value + Duty + Consumption tax) x 11.5% Tobacco, alcohol; precious jewelry and jade jewelry; golf balls and equipment; luxury watches; cosmetics Cosmetics Luxury watches (Note **) 60% (Dutiable value + 0 duty) / (1-30%) x 30% x 70% = Dutiable value x 30% (Dutiable value + 0 duty) / (1-20%) x 20% x 70% = Dutiable value 17.5% Note*:Goods value limit RMB 1,000 / 800; exempted if dutiable amount is less than RMB 50. Note**:Consumption tax levied on goods with a dutiable value of RMB 10,000 and above 39

40 China e-commerce Regulatory Developments Some Key Considerations: B2C vs B2B2C Multi-channel VAT invoicing, accounting, IT, staff remuneration, rental, etc. Returns and refunds Non-tariff requirements such as licensing and product registration Would the requirements change if ecommerce import not applicable due to e.g. exceeding threshold requirements? 40

41 Conclusion 41

42 Conclusion Consumer spending data indicates that China is still a major consumer market for growth Under current environment, Government appears more determined than ever to stay ahead in regulating international trade by modernising rules/practices and requiring more information disclosures. Important for companies to react in order to avoid the likes of significant additional tax assessments, disruptions to supply chains and denied access to the market. This could be through: Advance defence documentation preparation Periodic compliance reviews Voluntary disclosures

43 Q&A

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