China Tax Weekly Update - Issue 1
China Tax Weekly Update - Issue 1
The following matters are covered in this issue:
- Law of the People's Republic of China on Environmental protection Tax
- China Advance Pricing Arrangement (APA) Annual Report (2015)
- OECD advances BEPS continuity work
- Over 1300 relationships now in place to automatically exchange information between tax authorities
- OECD releases additional guidance on Action 4 of the BEPS Action Plan to curb international tax avoidance
- SAIC issues guidance to simplify the de-registration procedures for enterprises (Gong Shang Qi Zhu Zi[2016] No.253)
- SAT issues notice on R&D super deduction for year 2016 (Shui Zong Han[2016] No.685)
- SAT clarifies specific issues on VAT levying and administration (SAT Announcement[2016] No.86)
- China and Malaysia signed exchange notes for DTA (SAT Announcement[2016] No. 84)
- China issues notice on adjustment of tariff for year 2017(Shui Wei Hui [2016] No. 64)
- Three departments issue notice on import tax policy ofnew-type display device
- SAT issues notice on issuance of 2016 tax stamps
- List of Key Tax Policies in the second half of 2016
Law of the People's Republic of China on Environmental protection Tax
As highlighted in KPMG China Tax Weekly Update (Issue 34, September 2016),on 29 August 2016, the 12th National People‘s Congress (NPC) initially discussed the draft environmental protection tax law (Draft).
On 25 December, Law of the People’s Republic of China on EnvironmentalProtection Tax (“the Law ”) was approved by NPC, and will apply from 1January 2018, replacing the pollution fee currently levied by local governments.
| Taxpayers |
|
|---|---|
| Taxable subjects,taxable objects and tax base |
* The Law comprises a detailed rate table and the rules onrecognizing of pollution units. |
The principle of such legislation is that the tax burden will not be increased afterthe conversion from pollutant discharge fee to tax, by way of adopting the current standards for pollutant discharge fees, as well as rendering the payersof pollutant fees as taxpayers of Environmental Protection tax. “The fee to tax conversion” reform is one of major pieces of taxation reforms in China for 2016, being the fifth taxation law coming after the Law of the People's Republic of China Concerning the Administration of Tax Collection, Corporate Income Tax Law of the People's Republic of China, Individual Income Tax Law of thePeople's Republic of China, and Vehicle and Vessel Tax Law of the People'sRepublic of China.
OECD advances BEPS continuity work
As highlighted in KPMG China Tax Weekly Update (Issue 25, July 2016), (Issue 26, July 2016), (Issue 33, August 2016) ,(Issue 37, September 2016) , (Issue 41, November 2016), and (Issue 48, December 2016), the Organisation for Economic Cooperation and Development (OECD) has continued to release new policy documents for the continuity of BEPS work subsequent to the issuance of the October 2015 BEPS Deliverables. Recently, the OECD have further released several documents in relation to BEPS work on their official website. These releases fall within the Common Reporting Standard (CRS) and additional guidance on Action 4 of the BEPS Action Plan.
- Over 1300 bilateral relationships in place to allow automatic exchange information between tax authorities.
- As another important step to implement the OECD Common Reporting Standard (CRS), the OECD has advised that on 22 December 2016, a further 350 bilateral automatic exchange relationships have been established between over 50 jurisdictions committed to exchanging information automatically pursuant to the OECD Common Reporting Standard (CRS), starting in 2017.
- There are now more than 1 300 bilateral relationships in place across the globe, most of them based on the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information(the CRS MCAA). The full list of automatic exchange relationships that are currently in place under the CRS MCAA and other legal instruments can be accessed on the Automatic Exchange Portal. With respect to the jurisdictions exchanging as of 2017, 1133 out of the 1459 possible bilateral exchange relationships are now established. The 326 non activated exchange relationships are mainly due to the fact that 6 jurisdictions were not yet in a position to provide a full set of notifications.
- Two more rounds of activations are scheduled to take place in March and June 2017 which will allow the remaining 2017 and 2018 jurisdictions to nominate the partners with which they will undertake automatic exchanges in the coming months. The next update on the latest bilateral exchange relationships will be published before the end of March 2017, with updates to follow on a periodic basis. In total, 101 jurisdictions have agreed to start automatically exchanging financial account information in September 2017 and 2018, under the CRS.
*China committed to CRS already in 2014 and subsequently signed the CRS MCAA. China is committed to engage in the first information exchange in September 2018. though it has yet to nominate the countries with which it wishes to engage in information exchange through the CRS MCAA.
To prepare for the 2018 start of CRS exchanges, on 14 October 2016 the State Administration of Taxation (SAT) published a discussion draft on “Due Diligence Administrative Measures on Non-residents’ Financial Account Information in Tax Matters” for public comments (“the Discussion Draft”). The Discussion Draft published provides the principles and procedures for Chinese financial institutions in identifying the accounts of non-residents and collecting the relevant information. For more information, you may click our following KPMG publications for details:
- China Tax Weekly Update (Issue 40, October 2016)
- China Tax Alert: Public Consultation for the Draft Measures on the Due Diligence of Non-resident Financial Account Information in Tax Matters (Issue 32, November 2016)
- OECD releases additional guidance on Action 4 of the BEPS Action Plan to curb international tax avoidance
- On 22 December 2016, the OECD released an updated version of the BEPS Action 4 Report (Limiting Base Erosion Involving Interest Deductions and Other Financial Payments), which includes further guidance on two areas:
- The design and operation of the group ratio rule
The 2015 Action 4 Report set out a common approach to address BEPS involving interest and payments economically equivalent tointerest. This included a 'fixed ratio rule' which limits an entity's net interest deductions to a set percentage of its tax-EBITDA (earnings before interest, tax, depreciation and amortization) and a 'group ratiorule' to allow an entity to claim higher net interest deductions, based on a relevant financial ratio of its worldwide group. The reporti ncluded a detailed outline of a rule based on the net third party interest/EBITDA ratio of a consolidated financial reporting group, and provided that further work would be conducted in 2016 on elements of the design and operation of the rule. The updated report does not change any of the conclusions agreed in 2015, but provides a furtherlayer of technical detail to assist countries in implementing the group ratio rule in line with the common approach. This emphasises the importance of a consistent approach in providing protection for countries and reducing compliance costs for groups, while including some flexibility for a country to take into account particular feature sof its tax law and policy.
- Approaches to deal with risks posed by the banking and insurance sectors
The 2015 report also identified factors which suggest that the common approach may not be suitable to deal with risks posed by entities in the banking and insurance sectors. The updated report examines regulatory and commercial requirements which constrain the ability of groups to use interest for BEPS purposes, and limits on these constraints. Overall, a number of features reduce the risk of BEPS involving interest posed by banking and insurance groups, but differences exist between countries and sectors and in some countries risks remain. Each country should identify the risks it faces, distinguishing between those posed by banking groups and those posed by insurance groups. Where no material risks are identified, a country may reasonably exempt banking and/or insurance groups from the fixed ratio rule and group ratio rule without the need for additional tax rules. Where BEPS risks are identified, a country should introduce rules appropriate to address these risks, taking into account the regulatory regime and tax system in that country. The updated report considers how these rules may be designed, and includes a summary of selected rules currently applied by countries. In all cases, countries should ensure that the interaction of tax and regulatory rules and the possible impact on groups is fully understood.
- The design and operation of the group ratio rule
- On 22 December 2016, the OECD released an updated version of the BEPS Action 4 Report (Limiting Base Erosion Involving Interest Deductions and Other Financial Payments), which includes further guidance on two areas:
China Advance Pricing Arrangement (APA) Annual Report (2015)
On 26 December 2016, SAT released China Advance Pricing Arrangement Annual Report (2015) (“2015 APA Report”), which was promulgated in both Chinese and English version. 2015 APA Report introduce the APAs statistics concluded from 2005 to 2015, professional team building, key considerations and schedules of the APA program in China for 2015.
According to the report:
- In 2015, the Chinese tax authorities signed 12 APAs in total, including 6 unilateral APAs and 6 bilateral APAs.
- According to the comparison between bilateral APAs and unilateral APAs as of 31 December 2015, there are more bilateral APAs than unilateral APAs. Further analysis indicates that most of the unilateral APAs are either expired or in effect, whereas most of the bilateral APAs are in the “Pre-Acceptance” phase with the rest being in either “Accepted Applications” or “Concluded APAs” category. The above figures suggest that more and more enterprises prefer to apply for bilateral APA to gain certainty and avoid double taxation. They also demonstrate that increasing scrutiny in accepting and concluding bilateral APA applications is expected as more requests have been turned in for acceptance. As the Chinese tax authority aims to improve the quality of the APA examination work by steadily developing the APA program, extra care has been devoted to pre-filing examination. Hence many APA applications will stay in the pre-acceptance stage pending thorough examination.
- According to the statistics of APA types which involved in connected transaction as of 31December 2015, most of the enterprises applied for APAs are manufacturing companies which are mainly involved in intercompany purchase and sale of tangible assets. However, based on the number of accepted applications and concluded APAs, it is anticipated that the number of APAs involving other types of transactions will increase in the future. As China’s tertiary industry develops, an increasing number ofservice companies may decide to apply for APAs. Thus, more APAs mayinvolve transactions related to transfer or use of intangible assets, services and financing.
- The Chinese tax authorities generally aim to complete the review and negotiation process within 12 months for unilateral APAs and within 24 months for bilateral APAs. Bilateral APAs involve negotiations with relevant competent authorities through the MAP process and therefore more time is required to reach a consensus on them than that of unilateral APAs.
- According to the statistics used for transfer pricing of signed APA from year 2005 to 2015, the transactional net margin method (TNMM) is the most commonly used transfer pricing method, accounting for 78.4% of all the applied transfer pricing methods. The most commonly used profit level indicators are the Return on Sales ratio and the Full Cost Mark-up ratio. The second most popular transfer pricing method is the cost plus method.
*SAT issued notice on the Enhancement of Administration of Advance Pricing Arrangement (APA) (“Announcement 64”) , clarified matters on APA. For more specific changes and impacts of requirements on Announcement 64, please refer to the following links:
SAIC issues guidance to simplify the de-registration procedures for enterprises
On 27 December, the State Administration for Industry and Commerce (SAIC) issued Gong Shang Qi Zhu Zi [2016] No.253 (“Circular 253”), which requires to streamline the de-registration procedures nationwide for enterprises, effective from 1 March 2017.
- The following enterprises (including limited liability corporations, non- enterprise organizations, sole proprietorship enterprises or partnership enterprises) have discretion on the de-registration procedures whether to apply the general deregistration procedures or the simplified deregistration procedures :
- enterprises which have not carried out any business activity after obtaining the business license
- enterprises which have no credit or debt or has settled all credits and debts before applying for the de-registration
- For foreign-invested enterprises involved in the special requirements industries (e.g. equity percentages, executives), or enterprises that breach standards/rules, such as being included into the negative list of prohibited/restricted industries, or become the dishonest taxpayers, or have been share blocked, pledged, mortgaged, or being investigating, the said simplified de-registration procedures shall not qualify.
- Enterprises applying for the simplified de-registration procedures shall publicize the relevant information, such as intention of de-registration and all investors’ promises (e.g.: all credits and debts have been settled), through the national enterprise credit information publicity system. The public announcement period lasts 45 days.
- Enterprises can apply for the simplified de-registration procedures after the announcement period. When applying for the de-registration, materials like liquidation report, investor resolution, tax clearance certificates, filing returns of liquidation, published newspaper announcement shall not be needed to submit any more.
- For an enterprise which is not subject to any objection during the public announcement period, the registration authority should make decision on permission of the simplified de-registration in 3 working days.
SAT issues notice on R&D super deduction for year 2016
As highlighted in KPMG China Tax Weekly Update (Issue 1, January 2016) , CaiShui[2015] No. 119 and SAT Announcement 97 clarified detailed implementation standards regarding R&D expenses super deduction (“Super Deduction Policies”, which apply to the Corporate Income Tax (CIT) annual filing for 2016 and afterwards.
On 21 December 2016, SAT issued notice on R&D super deduction (Shui Zong Han[2016] No.685), which emphasizes:
- The implementation of Super Deduction Policies for year 2016 shall only be based on verification of enterprises’ eligible expenses in the year 2016. There is no need for verifying such expenses occurred before 2016 to be the implementation standards in 2016. The matters concerning Super Deduction Policies which happened before 2016 shall not affect enterprises enjoying the 150% super deduction in 2016.
- For those enterprises claimed for 150% super deduction but are unable to provide necessary materials or subject to the uncertainties of preferential policies, authorities shall actively conduct the guidance and interpretation work for enterprises to benefit from the 150% super deduction incentive.
- Retrospective 3-year claims: Companies will be able to deduct unclaimed R&D expenses of 2016 for 3-year period since 2017.
* For more detail analysis of R&D super deduction policies, please refer to thefollowing KPMG publications:
SAT clarifies specific issues on VAT levying and administration
As highlighted in KPMG China Tax Weekly Update (Issue 49, December 2016), on 21 December, China’s Ministry of Finance (“MOF”) and SAT jointly issued Cai Shui [2016] No.140 (“Circular 140”), clarified a number of uncertainties which have arisen in practice. In respond of Circular 140, on 24 December 2016, SAT released SAT Announcement[2016] No.86 (“Announcement 86”) to further clarify the issues identified in practice emerged, effective from 24 December 2016. Announcement 86 mainly clarifies the following details:
- The time point of deduction for purchases of land use rights against the sale for developers as mentioned in Circular 140.
- Matters on adjusting tax declaration and the issuance of VAT invoices to give effect to Circular 140.
- Matters on how to use the overpaid VAT to offset VAT payable of later periods, if a taxpayer has overpaid VAT in a prior period clarified in Circular 140.
- How should insurance companies issue VAT invoices for co-insurance service.
- For taxpayers renting immovable properties, where rent-free period is stipulated in the lease contract, such transaction shall not be classified as deemed sales
*For more detail analysis and specific impacts of it on enterprises of Circular140, please refer to the following link:
China and Malaysia signed exchange notes for DTA
As highlighted in KPMG China Tax Weekly Update (Issue 42, November 2016), on 1 November 2016, China and Malaysia signed an Exchange of Notes (EoN) to the A greem ent between the Governm ent of the People’s R epubli c of C hina and the Government of Malaysia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (“The EoN”), in Beijing.
On 19 December 2016, SAT issued SAT Announcement [2016] No. 84, promulgated the full text of the EoN, effective from 1 November 2016. Interest arising in a Contracting State derived by the Government (including specified institutions wholly owned by the respective Governments) are eligible for tax exemption of the China-Malaysia DTA signed in 1985. The EoN clarifies the list of institutions wholly owned by the respective Governments.
China issues notice on adjustment of tariff for year 2017 (Shui Wei Hui [2016] No. 64)
On 24 December 2016, China issues notice on adjustment of tariff for year 2017 (Shui Wei Hui[2016] No. 64), making adjustments on import and export duties, effective from 1 January 2017.
You may click here to access the full content of the circular.
Three departments issue notice on import tax policy of new-type display device
On 5 December 2016, MOF, GAC and SAT jointly issued Cai Guan Shui[2016] No. 62(“ Circular 62”), deciding that during 13th 5-year period, which is from 1 January 2016 to 31 December 2020, to take continuing efforts to implement tax incentives (such as exempted from imported tariff, and VAT) for the imported new-type display device along with upstream raw materials as well as certain goods imported by parts manufacturer. Circular 62 also clarifies lists of abovementioned goods exempted from imported taxes.
You may click here to access the full content of the circular.
SAT issues notice on issuance of 2016 tax stamps
On 12 December 2016, SAT issued SAT Announcement [2016] No. 85 (“Announcement 85”), releasing the tax stamps version 2016. Announcement 85 clarifies stamps pattern, stamps sizes and packages, stamp anti- counterfeiting measures as well as distributing amount. Meanwhile, Announcement 85 explicates that the tax stamps issued in previous years still valid in the future.
You may click here to access the full content of the circular.
List of Key Tax Policies in the second half of 2016
* With respect to the List of Key Tax Policies in the first half of 2016, you may click to access KPMG China Tax Weekly Update (Issue 25, July 2016).
| Tax | Regulation | Effective date | link |
|---|---|---|---|
| International Tax |
|
N/A | China Tax Weekly update Issue 40, 2016 China Tax Alert Issue 32, 2016 China – Looking Ahead, 6th Edition (BEPS in China – multi- track developments) |
|
N/A | China Tax Weekly Update Issue 26, Issue 34, Issue 35,Issue 41 and Issue 45 China Tax Alert Issue 35 |
|
|
9 August 2016 | China Tax Weekly update Issue 31, 2016 | |
|
9 April 2016 | China Tax Weekly Update Issue 30, 2016 | |
|
1 July 2016 | China Tax Weekly update Issue 30, 2016 | |
|
8 August 2016 | China Tax Weekly update Issue 48, 2016 | |
| Transfer Pricing |
|
Year 2016 and afterwar ds | China Tax Weekly update Issue 27, 2016 China Tax Alert Issue 23, 2016 China – Looking Ahead, 6th Edition (China transfer pricing – first mover onBEPS) |
|
1 Decemb er 2016 | China Tax Weekly update Issue 40, Issue 44, 2016 China Tax Alert Issue 28, 2016 |
|
|
N/A | China Tax Weekly update Issue 44, 2016 | |
| Corporate Income Tax |
|
1 January 2016 | China Tax Weekly Update Issue 44 , Issue 47, 2016 |
|
1 September 2016 | China Tax Weekly update Issue 37 and Issue 38, 2016 China – Looking Ahead, 6th Edition (Tax to the aid of innovation and entrepreneurshi p in China) |
|
|
5 December 2016 | China Tax Weekly Update Issue 46, 2016 Hong Kong Tax Alert Issue 14, 2016 |
|
|
1 May 2015 | China Tax Weekly Update Issue 43, 2016 |
|
|
1 January 2016 | China Tax Weekly Update Issue 45, 2016 | |
|
1 January 2016 | China Tax Weekly Update Issue 48, 2016 | |
|
9 December 2016 | China Tax Weekly Update Issue 48, 2016 | |
| Value Added Tax |
|
1 May 2016 | China Tax Weekly Update Issue 26, Issue 34, Issue 45, Issue 46 and Issue 49, 2016 China Tax Alert Issue 20 and Issue 18, 2016 China Tax Weekly Update Issue 1, 2017 China – Looking Ahead, 6th Edition (Post VAT reform in China – what’s next?) |
|
1 January 2016 | China Tax Weekly Update Issue 49, 2016 | |
|
1 May 2016 | China Tax Weekly Update Issue 48, 2016 | |
| Consumption Tax |
|
1 October 2016 19 October 2016 |
China Tax Weekly Update Issue 38 and Issue 41, 2016 |
|
1 December 2016 | China Tax Weekly Update Issue 46, 2016 | |
| Stamp Duty |
|
1 January 2017 | China Tax Weekly update Issue 47, 2016 |
| Individual Income Tax |
|
1 September 2016 | China Tax Weekly update Issue 37 and Issue 38, 2016 China Tax Alert Issue 38, 2016 |
|
5 December 2016 | China Tax Weekly Update Issue 46, 2016 Hong Kong Tax Alert, Issue 14, 2016 |
|
| Tax Admin |
|
8 July 2016 1 September 2016 19 August 2016 1 December 2016 |
China Tax Weekly Update Issue 27, Issue 29, Issue 44 and Issue 45, 2016 China Tax Alert Issue 28, 2016 China – Looking Ahead, 6th Edition (China tax – big data and beyond) |
|
1 January 2017 | China Tax Weekly Update Issue 48, 2016 | |
|
1 October 2016 | China Tax Weekly Update Issue 26, 2016 | |
| NPC Legislation |
|
1 January 2018 | China Tax Weekly Update Issue 1, 2017 |
|
N/A | China Tax Weekly Update Issue 49, 2016 | |
|
1 June 2017 | China Tax Weekly Update Issue 43, 2016 | |
| Forex Administra tion |
|
25 January 2016 3 May 2016 27 May 2016 3 February 2016 5 Septemb er 2016 9 June 2016 |
China Tax Weekly Update Issue 38, 2016 |
| Customs |
|
1 October 2016 | China Tax Weekly Update Issue 26, Issue 38, 2016 China Tax Alert Issue 21, 2016 China – Looking Ahead, 6th Edition (China Customs – pushing the boundaries) |
|
1 November 2016 1 Decemb er 2016 |
China Tax Weekly Update Issue 42 and Issue 46, 2016 China Tax Alert Issue 30, 2016 |
|
|
1 September 2016 1 Novemb er 2016 |
China Tax Weekly Update Issue 31 and Issue 40, 2016 | |
| Corporate Investment |
|
1 October 2016 8 October 2016 |
China Tax Weekly Update Issue 35, Issue 37, Issue 39 and Issue 47, 2016 |
|
21 October 2016 | China Tax Weekly Update Issue 42, 2016 | |
|
1 February 2017 20 Decemb er 2016 |
China Tax Weekly Update Issue 48 and Issue 49, 2016 | |
|
N/A | China Tax Weekly Update Issue 28, 2016 China Tax Alert Issue 24, 2016 |
|
| Others |
|
13 August 2016 8 Septemb er 2016 |
China Tax Weekly Update Issue 28 and Issue 36, 2016 |
|
2 November 2016 | China Tax Weekly Update Issue 34 and Issue 44, 2016 |
© 2021 KPMG KPMG Huazhen LLP, a People's Republic of China partnership, KPMG Advisory (China) Limited, a limited liability company in China, KPMG, a Macau partnership and KPMG, a Hong Kong partnership, are member firms of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
For more detail about the structure of the KPMG global organisation please visit https://home.kpmg/governance.
Connect with us
- Find office locations kpmg.findOfficeLocations
- Email us kpmg.emailUs
- Social media @ KPMG kpmg.socialMedia