ews Flash China Tax and Business Advisory Administrative measures for VAT exemption on cross-border under the B2V Pilot Program detailed preferential policy conditions and standardised record filing procedure May 2016 Issue 16 In brief On 24 March 2016, the Ministry of Finance (MoF) and the State Administration of Taxation (SAT) jointly released Caishui [2016] o.36 <otice on the Comprehensive Roll-out of the Business tax to Value Added Tax (B2V) Transformation Pilot Program (the B2V Pilot Program )> ( Circular 36 ). Appendix 4 of Circular 36 <Regulations on the Cross-border Taxable Activities eligible for VAT Zerorating or Exemption> clarifies the VAT exemption policies for cross-border of the newly included B2V industries and adjusts the scope of cross-border that was previously included in the B2V Pilot Program. On 12 May, the SAT released Public otice o.29 <Administrative Measures on VAT Exemption for Cross-border Taxable Services under the B2V Pilot Program (Trial)> ( P 29 ), which clarifies the detailed implementation requirement for cross-border and standardises the record-filing procedures for cross-border eligible for VAT exemption. P 29 shall take effect retrospectively from 1 May 2016 and the previous released Public otice o.49, <Administrative Measures on VAT Exemption for Cross-border Services under the B2V Regime (Trial)> was abolished simultaneously. In this issue of our ews Flash, we would like to introduce the new measures on cross-border eligible for VAT exemption treatment and share our observations. In detail Adjusting the VAT exemption scope of crossborder Circular 36 has made considerable adjustments on the VAT exemption scope of cross-border, based on P 29 which provides further clarification on the scope, such as: Removing certain taxable services eligible for zerorated VAT treatment from the scope of VAT exemption, including production and distribution services for radio, film and television programs, transfer of technology services, software services, circuit design and testing services, information system services, business process management services, energy performance contracting services and offshore service outsourcing business. Adding certain taxable activities into the scope of VAT exemption, such as construction services and engineering supervision services for engineering projects outside the territory of China ( outside the territory ), cultural and sports services, education and medical services, and tourism services provided outside the territory, insurance services provided for exports of goods, direct chargeable financial www.pwccn.com
ews Flash China Tax and Business Advisory services meeting certain conditions, international transportation services provided by non-transport operating carriers, professional technical services and commercial supporting services provided to entities outside the territory for consumption exclusively outside the territory, etc. Reclassifying certain taxable services already enjoying VAT exemption to a new category of tax items, such as merging certification services, attestation services and consulting services into a new tax item called attesting and consulting services, merging transfer of trademark and copyright services into the tax item of sale of intangible assets. Detailing the requirement for cross-border eligible for VAT exemption Comparing with the previous regulation, Circular 36 has adjusted the conditions for cross-border taxable activities to be eligible for VAT exemption, and P 29 further clarifies the detailed implementation requirements for cross-border taxable activities so as to provide clearer guidance to the pilot taxpayers in assessing their eligibility for VAT exemption. Aiming at the specific features of cross-border taxable activities, P 29 stipulates different assessment standards for different types of cross-border (such as the location of where the occur, the location of the subject matter of, the recipient and location of the consumption of the ). Please refer to the appendix for details. In addition, P 29 also stipulates that VAT exemption is granted to certain cross-border activities eligible for zero-rated VAT treatment which are applicable to the VAT simplified method or where the taxpayer has made a declaration to give up the zerorated VAT treatment. Clarifying the standard of consumed completely outside service recipient is outside the and the services are not related to any goods or immovable property within ; the circumstance where intangible assets are used exclusively outside the and are not related to any goods or immovable property within. otwithstanding the above, there are still some controversies in practice as to how to interpret the term. In response, P 29 provides further clarification for each of the 8 categories of cross-border. P 29 uses two different methods depending on the nature of the cross-border taxable activities: Positive list: Using the method of providing a definition or an example, P 29 clarifies what circumstances would fall within. For example, P 29 stipulates that aviation ground services, port services, freight and passenger depot services, salvage services, handling and removal services provided to overseas entities engaging in international transportation services and Hong Kong, Macao and Taiwan transportation services on stopping over at airports, ports, depots, airspaces, inland waters, territorial waters within the are regarded as logistics supporting services which are consumed completely outside. egative list: Using the exclusion method, P 29 clarifies what circumstances would not fall within consumed completely outside. For example, P 29 stipulates that if the actual service recipients of professional technical services are within, such services are not regarded as consumed completely outside the. With the use of the two methods, P 29 can help to clarify how the general principle correspondingly applies to the taxpayer s specific economic activities and help pilot taxpayers to understand the term consumed completely outside the territory of China more accurately and thereby lower the compliance risk. As Circular 36 has to a certain extent adjusted the VAT exemption conditions for cross-border taxable activities, some that were previously eligible for VAT exemption would no longer meet the conditions from 1 May. To ensure the smooth transition of the policy, P 29 provides a transitional policy that contracts meeting the VAT exemption conditions stipulated in the previous policy 1 signed before 30 April by pilot taxpayers can continue to enjoy the VAT exemption before the expiry of the contracts. These taxpayers would not be adversely affected on such economic activities as a result of the policy adjustment. Standardising Procedural Requirement P 29 provides standardised procedural requirements for crossborder as follows: Circular 36 adds the new condition for 8 categories of cross-border eligible for VAT exemption. Circular 36 also stipulates that consumed completely outside refers to the circumstance where the actual Transitional policy 2 PwC The record-filing documents for cross-border are revised according to the adjusted VAT exemption scope and conditions. At the same time, P 29 clarifies that pilot taxpayers should submit relevant recordfiling documents and complete the record-filing procedures within the filing period in order to enjoy the VAT exemption for the first or other prescribed period. To protect the legal rights of pilot taxpayers, P 29 stipulates that regardless of whether the tax authority accepts or does not accept the record-filing documents of taxpayers for enjoying VAT exemption, it should issue written dated document with the tax authority s official to the taxpayers as evidence. P 29 clarifies the 4 categories of cross-border qualifying for zero-rated VAT treatment, for which pilot taxpayers can elect to give up the zero-rated VAT treatment and elect to enjoy the VAT exemption. Comparing with the previous policy, P 29 deletes other documents required by each province, autonomous region, municipality directly under the Central Government and city specifically designated in the State plan from the documents required for record-filing purpose and introduced the obligations of taxpayers in enjoying the VAT preferential policy, which provides more transparency for the whole
ews Flash China Tax and Business Advisory procedure and more clarity on the rights and responsibilities of both tax authorities and taxpayers. The takeaway Circular 36 and P 29 have adjusted and refined the conditions for taxpayers to be eligible for VAT exemption for cross-border taxable activities, and standardised the procedural requirements. Pilot taxpayers should pay close attention to the relevant requirements and respond accordingly: Pilot taxpayers already enjoying VAT exemption of taxable activities should pay close attention to the change in conditions for enjoying VAT exemption, particularly new standards, such as consumed completely outside the territory of China, etc. and perform reasonable assessment on their own business. For taxpayers no longer meeting the conditions, they should fully utilise the transitional policy. ew pilot taxpayers should assess whether their businesses are eligible for VAT exemption and understand time frame and documents required for recordfiling, master the requirements in relation to accounting, issuing of invoices, tax filing, receipt management, etc. to ensure compliance with the regulations and procedures. Pilot taxpayers should communicate with the tax authorities and actively provide feedback to the relevant departments for issues encountered in implementing the VAT exemption policy to ensure that the policy is applied correctly and avoid the tax risks. Endnote 1. otice Jointly Issued by the MoF and SAT Including Railway Transport and Postal Services into the B2V Pilot Program (Caishui[2013] o.106), Attachment 4; otice Jointly Issued by the MOF and SAT on Cinema/Television and other Export Services Applying the Zero-rated VAT Treatment (Caishui [2015] o.118) 3 PwC
ews Flash China Tax and Business Advisory Appendix: VAT exemption items for cross-border and related basic requirements Assessment criteria Cross-border Basic requirement Whether or not further guidance is provided in P29 Construction services Construction projects located outside Engineering supervision services Engineering projects located outside Engineering survey and exploration services Engineering projects and mineral resources located outside the territory of China A. Location where the taxable activities occur Convention and exhibition services Warehousing services Convention and exhibition held outside Storage places located outside the Tangible asset leasing services Subject matter used outside the Broadcasting services for radio, film, and television programs (works) Provided outside Cultural and sports services, education and medical services, tourism services Provided outside B. Subject matter of taxable activities Postal services, receiving and delivery services, insurance services Services provided for export goods Telecommunication services Intellectual property services C. Recipients and location of consumption of Logistics supporting services (other than warehousing services and receiving and delivery services) Assurance and consulting services Professional technical services Services provided to overseas units and consumed completely outside the Commercial supporting services Advertising services for advertisements released outside the territory Intangible assets D. Specific international transportation services International transportation services Unable to enjoy the zero-rated VAT for international transportation services, such as services which are not provided by transport carriers, relevant permit has not been obtained, etc. E. Effect of the ; correlation of the with assets within the territory of China Direct fee charging financial services Services provided for monetary financing between entities located outside and other financial business operations, which are not related to any goods, intangible assets, or real property located within 4 PwC
ews Flash China Tax and Business Advisory Let s talk For a deeper discussion of how this issue might affect your business, please contact a member of PwC s China Indirect Tax Team: Alan Wu +86 (10) 6533 2889 alan.wu@cn.pwc.com Janet Xu +86 (20) 3819 2193 janet.xu@cn.pwc.com Kelvin Lee +86 (22) 2318 3068 kelvin.lee@cn.pwc.com Robert Li +86 (21) 2323 2596 robert.li@cn.pwc.com Cindy Li +86 (755) 8261 8151 cindy.j.li@cn.pwc.com Jason e +86 (10) 6533 3153 jason.zy.ye@cn.pwc.com Liang Gong +86 (21) 2323 3824 liang.gong@cn.pwc.com Catherine.Tsang +852 2289 5638 catherine.tsang@hk.pwc.com Michael Ma +86 (21) 2323 3743 michael.ma@cn.pwc.com PwC s China Indirect Tax Team comprises a team of professionals with rich indirect tax experience and integrated knowledge, both internationally and domestically, stationed in our Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin and Hong Kong offices. We advise businesses on Chinese indirect tax matters and work on Chinese indirect tax developments. Our Indirect Tax Team in China is part of PwC s global indirect tax network of 1,800 experienced and specialized professionals. In the context of this ews Flash, China, Mainland China or the PRC refers to the People s Republic of China but excludes Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan Region. The information contained in this publication is for general guidance on matters of interest only and is not meant to be comprehensive. The application and impact of laws can vary widely based on the specific facts involved. Before taking any action, please ensure that you obtain advice specific to your circumstances from your usual PwC s client service team or your other tax advisers. The materials contained in this publication were assembled on 23 May 2016 and were based on the law enforceable and information available at that time. This China Tax and Business ews Flash is issued by the PwC s ational Tax Policy Services in China and Hong Kong, which comprises of a team of experienced professionals dedicated to monitoring, studying and analysing the existing and evolving policies in taxation and other business regulations in China, Hong Kong, Singapore and Taiwan. They support the PwC s partners and staff in their provision of quality professional services to businesses and maintain thought-leadership by sharing knowledge with the relevant tax and other regulatory authorities, academies, business communities, professionals and other interested parties. For more information, please contact: Matthew Mui +86 (10) 6533 3028 matthew.mui@cn.pwc.com Please visit PwC s websites at http://www.pwccn.com (China Home) or http://www.pwchk.com (Hong Kong Home) for practical insights and professional solutions to current and emerging business issues. 2016 PricewaterhouseCoopers Consultants (Shenzhen) Ltd. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers Consultants (Shenzhen) Ltd. which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.