The Latest Development in Mainland China Tax. 9 February 2015

Transcription

1 The Latest Development in Mainland China Tax 9 February 2015

2 Today s rundown Overview of China s Tax Position Today and Future Development Valued Added Tax (VAT) Reform Overview of Pilot Zones in China Page 2

3 Overview of China s tax position Today and future development 3

4 Tax revenue for Year 2013 and Year 2014 Year 2013 (billion RMB) Year 2014 (billion RMB) Percentage of Annual Increment (%) Central Government 5,664 6, % Local Government 5,389 5, % Total 11,053 11, % Source : Website of the Ministry of Finance of China Page 4

5 Revenue (billion RMB) Breakdown of Year 2014 tax revenue Domestic Value Added Tax Domestic Consumption Tax Business Tax Corporate Income Tax Individual Income Tax Taxes related to Import Customs Duty Tax Refund for Exported Goods Deed Tax Land Appreciation Tax Others Total Revenue (billion RMB) 3, ,778 2, , (1,136) ,581 11,916 3,500 3,000 2,500 2,000 1,500 1, ,000-1,500 Domestic Value Added Tax Domestic Consump-tion Tax Business Tax Corporate Income Tax Individual Income Taxes related to Tax Import Customs Duty Tax Refund for Exported Goods Deed Tax Land Appreciation Tax Others Source : Website of the Ministry of Finance of China Page 5

6 China signed the Mutual Administrative Assistance in Tax (MA) - Aug 2013 China signed MA in August 2013 on co-operation for exchange of information including automatic exchanges Next steps: 1) Submit for State Council s approval; and 2) Submit for the National People s Congress approval As of 21 January jurisdictions already signed MA Source: State Administration of Taxation (SAT) Page 6

7 Base Erosion and Profit Shifting (BEPS) SAT debrief in Beijing - 25 Sep 2014 Debrief on BEPS Digital economy (Action 1) Hybrid mismatch (Action 2) Harmful tax practice (Action 5) Treaty abuse (Action 6) TP (IP, risk and capital and other high risk transactions) (Actions 8, 9, 10) Country-by-country reporting (Action 13) Multilateral instrument (Action 15) Source: Page 7

8 Highlights of the OECD Forum on Tax Administration Dublin, Oct 2014 Actions to facilitate and implement results of the BEPS project and automatic exchange of information: A strategy for systematic and enhanced co-operation between tax authorities; To invest resources needed to implement the new standard on automatic exchange of information; and To improve the practical operation of the mutual agreement process. Source: Page 8

9 Automatic Exchange of Tax Information (AEOI) Status of Commitment as of 6 Nov 2014 On 23 February 2014, the G20 Finance Ministers endorsed the Common Reporting Standard (CRS) for AEOI CRS provides for annual automatic exchange between governments of financial account information reported to governments by financial institutions and covering accounts held by individuals and entities, including trusts and foundations First exchange by 2018 Source: AEOI: Status of Commitments (as of 6 November 2014) Page 9

10 Tax Reforms Pipeline General Anti Avoidance Rule (GAAR) consultation paper Main features Adjustment methods Procedures Revision to Guoshuifa [2009] 2 Special tax adjustment (GAAR) By 2015 BEPS / GAAR Supplementary circular on capital gains on indirect transfer (Guoshuihan [2009] 698) Early 2015 Strengthen competitiveness / protection of resources Alignment of laws / rules Individual Income Tax Anti-avoidance Value Added Tax (VAT) Tax Collection and Administrative Law Draft for public comments 2013 Anti-avoidance AEOI, MA, FATCA Accelerated depreciation for R&D to encourage innovation (Circular Caishui 2014] 75 Resource tax (RT) reform New RT based on price on coal from 1 December 2014 Similar reforms in the taxation of crude oil and natural gas in 2011 Green tax (environmental tax) Page 10

11 SAT strengthens tax investigation efforts BEPS Double non-taxation Harmful tax planning Treaty abuse Structure and arrangement without economic substance Profits do not align with business functions and value creation Unreasonable deduction Hybrid transactions China specific Loss of single function subsidiary Inflated IP Low return on high-tech enterprises Insufficient consideration on the uniqueness of the China market Transfer of foreign losses to China Page 11

12 Tax on indirect sale of shares in Chinese companies New supplemental rule of Circular Guoshuihan[2009] No.698 may be announced soon in China: China target s obligation to inform and help tax authority; More details about tax authority s view on lacking of commercial substances; Documentation filing is required within 30 days under certain situations; Special restructuring rule provide room for tax deferral; Withholding obligation, voluntary filing, and penalty and interest may be introduced; Tax calculation base, time and procedure may remain to be uncertain. Page 12

13 Summary of Public 698 Cases - as of Sept 2014 Source: RMB 10M RMB 1-10M RMB 1M Case 19 Location: Changsha,Hunan Release year: 2014 Tax liability: CNY9.1M Case 1 Location: Chongqing Release year: 2008 Tax liability: CNY0.98M Case 4 Location: Guiyang, Guizhou Release year: 2011 Tax liability: CNY31.5M Cases 1,3,4,5,6,8,9,10,11,12,15,17,18,23,25: China Taxation News Case 2: Suzhou Daily Case 7: Website of Chongqing State Tax Bureau Case 13: Taizhou News Case 14: Website of Jiangsu Local Tax Bureau Case 16: Haishu News Case 19: Website of Hunan State Tax Bureau Case 20: Website of Guangdong State Tax Bureau Case 21: Shenzhen News Case 22: Website of Jiangsu State Tax Bureau Case 24: Website of Harbin State Tax Bureau Case 8 Location: Jincheng, Shanxi Release year: 2012 Tax liability: CNY403M Xinjiang Tibet Qinghai Gansu Sichuan Yunnan Case 3 Location: Shantou, Guangdong Release year: 2011 Tax liability: CNY7.2M Case 20 Location: Shantou, Guangdong Release year: 2014 Tax liability: Not disclosed Case 10 and Case 11 Location: Meihekou, Jilin Release year: 2012 Tax liability for two cases: CNY235M and CNY 72.67M, respectively Case 14 Release year: 2013 Tax liability: Not disclosed Ningxia Shaanxi Hubei Chongqing Guizhou Guangxi Inner Mongolia Shanxi Hunan Beijing Tianjin Hebei Henan Shandong Jiangxi Liaoning Jiangsu Anhui Guangdong Case 21 Location: Hainan Shenzhen Release year: 2014 Tax liability: CNY30M Fujian Heilongjiang Jilin Zhejiang Hong Kong Macau Shanghai Case 24 Location: Harbin, Heilongjiang Release year: 2014 Tax liability: CNY142M Case 15 Location: Jiamusi, Heilongjiang Release year: 2013 Tax liability: CNY279M Case 18 Location: Qingdao, Shandong Release year: 2014 Tax liability: CNY10.28M Case 25 Location: Ningbo, Zhejiang Release year: 2014 Tax liability: CNY3.6M Case 5 Location: Ningbo, Zhejiang Release year: 2011 Tax liability: CNY4.23M Case 16 Taiwan Location: Ningbo, Zhejiang Release year: 2013 Tax liability: CNY9.38M Case 17 Location: Hangzhou, Zhejiang Release year: 2014 Tax liability: CNY450M Case 2 Location: Jiangdu, Jiangsu Release year: 2010 Tax liability: CNY173M Case 6 Location: Kunshan, Jiangsu Release year: 2011 Tax liability: CNY44M Case 7 Location: Qidong, Jiangsu Release year: 2012 Tax liability: CNY 299M Case 9 Location: Kunshan, Jiangsu Release year: 2012 Tax liability: CNY6.42M Case 12 Location: Nanjing, Jiangsu Release year: 2012 Tax liability: CNY68M Case 13 Location: Taizhou, Jiangsu Release year: 2013 Tax liability: CNY98.25M Case 22 Location: Changzhou, Jiangsu Release year: 2014 Tax liability: Not disclosed Case 23 Location: Qidong, Jiangsu Release year: 2014 Tax liability: CNY 30M Page 13

14 Notice of anti-avoidance investigations on significant outbound payments - Shuizongbanfa [2014] No. 146 Service Fees / Royalty Payment Overseas Company China Company On 29 July 2014, the State Administration of Taxation ( SAT ) released the Notice of Anti- Avoidance Investigations on Significant Outbound Payments Objective: Further strengthen antiavoidance investigation, promote the prevention of tax evasion and prevent enterprises from transferring profits by outbound payments Target: Enterprises paying significant service fees and royalties to overseas related parties during , especially payments to tax haven and other low-tax countries and regions Page 14

15 Notice of anti-avoidance investigations on significant outbound payments - Shuizongbanfa [2014] No. 146 (Cont d) Service Fees / Royalty Payment Page 15 Overseas Company China Company Service Fees Receiving shareholder services or confirming to group standards; Services which could be performed by domestic enterprises independently or services which have been provided by any third party; Services which were irrelevant to functions and risks or operations undertaken by domestic enterprises, or relevant but did not match their operations or conform to their operation phases; Included into prices of other transactions. Royalties Paid to tax havens; Paid to overseas related parties which did not undertake functions or just undertook simple functions; Large-amount paid to overseas related parties, though domestic enterprises made special contributions to the intangible property ( IP ) value or the IP value has depreciated.

16 Valued Added Tax (VAT) Reform 16

17 Tax Reform VAT Pilot Since 2012, the overall tax burden has been reduced by over RMB billion (approx. USD 53.5 billion) as of October 2014 In the first half of 2014, the total tax reduction is RMB 85.1 billion (approx. USD 13.9 billion) Source: Page 17 The VAT reform is expected to include more industries such as real estate, construction, life-style services and financial services by 2015

18 VAT Pilot History and next steps Quoted from Ministry of Finance (MOF) : Change to service sector; Reduction on manufacturing industry; Benefits for the entire economy. Jan to May 2012 Jul to Aug 2012 Shanghai VAT pilot began Began to study the scope of Beijing VAT pilot Announced that VAT Pilot would be extended to 8 other provinces Dec 2013 May 2013 Caishui [2013] No. 37 announced the VAT Pilot of nationwide for Transportation and certain Modern Service Industries The MOF & State Administration of Taxation (SAT) announced that Railway Transportation and Postal Services would be included in the VAT scope from 1 Jan Announced that Telecommunication Services would be included in the VAT scope from 1 June 2014 The MOF is currently conducting research for the expansion of the VAT Pilot into Financial, Construction, Real Estate and Life-Style Services sectors 2015 and early 2016 Anticipated that Real Estate, Construction, Life-Style Services and Financial Services would be included in the VAT scope in 2015 and/or early onwards Page 18

19 VAT Pilot - Time table Based on our understanding, the timeline for VAT Pilot expansion is anticipated to be as follows: VAT rules for Real Estate and Construction available VAT Pilot for Real Estate and Construction start VAT rules for Life- Style Services available VAT Pilot for Life-Style Services start / VAT rules for Financial Services available VAT Pilot for Financial Services start Q Q1 or Q Q /- a few months End of 2015 or Early 2016 Services to be included in the scope of the VAT Pilot in the near future: Real Estate Construction Life-Style Services Financial Services Businesses in the relevant industries are recommended to allow sufficient time and allocate resources promptly to get ready for the VAT Pilot. Page 19

20 Overview of Pilot Zones in China 20

21 Geographical distribution of Pilot Zones in China China Shanghai Pilot Free Trade Zone Pingtan Comprehensive Pilot Zone Qianhai Shenzhen-Hong Kong Modern Services Industry Cooperation Zone Hong Kong Hengqin New Area Page 21

22 Timeline for the development of Pilot Zones in China Implementation of the Overall Development Plans for Hengqin Announcement of the Corporate Income Tax Incentives for Hengqin, Qianhai and Pingtan Regions August 2010 November 2011 September 2013 August 2009 March 2014 Implementation of the Overall Development Plans for Qianhai Implementation of the Overall Development Plans for Pingtan Implementation of the Overall Development Plans for Shanghai Page 22

23 CIT preferential policies and catalogues for Hengqin, Pingtan and Qianhai - Caishui [2014] No. 26 Announced Date:25 March 2014 CIT preferential policies: Effective date: 1 January 2014 to 31 December 2020 Enterprises established in Hengqin, Pingtan or Qianhai engaging in the encouraged industries can be subject to a reduced CIT rate of 15%, provided that these enterprises have their core businesses in the preferential CIT catalogue, and their income is derived from such core businesses accounting for >70% of their total income. Area Hengqin Pingtan Qianhai General categories 5 Categories (72 businesses) 5 Categories (127 businesses) 4 Categories (21 businesses) High and new technology High technology Modern logistics service Medical and hygiene Service Information service Industries Technological education, Agricultural and Technology service research and development oceanic industry Environmental Cultural creativity Cultural creativity protection Commerce and Trading Public facilities management Page 23

24 Questions and answers 24

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