The following matters are covered in this issue:
- OECD releases tax reports at G20 Leaders’ Summit
- 2017 legislation work plan of the State Council (Guo Ban Fa  No. 23)
- China to liberalize rules for foreign-invested banks (Yin Jian Ban Fa  No. 12)
- China to further reduce “non-tax” fiscal burdens（Cai Shui  No. 18）
OECD releases tax reports at G20 Leaders’ Summit
As highlighted in KPMG China Tax Weekly Update (Issue 35, September 2016), in September 2016, the G20 Leaders’ Summit was held in Hangzhou, China. The G20 Leaders communique included the following statement:
“We emphasize the effectiveness of tax policy tools in supply-side structural reform for promoting … the benefits of tax certainty to promote investment and trade and ask the OECD and International Monetary Fund (IMF) to continue working on … tax certainty.”
Further to this, on 18 March 2017, an OECD/IMF report on tax certainty was posted to the OECD’s website. The report, published as Annex 1 to the OECD Secretary-General Report to the G20 Finance Ministers (secretary-general report), sets out a number of recommendations for reducing tax law complexity and improving tax policy design, improving tax administration predictability and consistency, and better dispute resolution, including in relation to cross-border taxation. The intent is for the OECD to continue to monitor progress in improving tax certainty across countries and to provide regular updates and suggestions.
The secretary-general report consists of two parts:
Part I is an update report by the OECD Secretary-General regarding the latest development in the international tax agenda, including the joint OECD/IMF Report on Tax Certainty. And this part also includes an update on:
- The G20/OECD Inclusive Framework on BEPS implementation;
- Tax transparency, in particular on automatic exchange of information; and
- Tax and development.
Part II is a Progress Report to the G20 by the Global Forum on Transparency and Exchange of Information for Tax Purposes. This notes that 2017 is a turning point in achieving greater global tax transparency as the first batch of jurisdictions (53 out of 100) will commence automatic exchange of information (AEOI) through the Common Reporting Standard (CRS) from September 2017. China is also a CRS participant, and will commence exchanges in September 2018 with a further 47 jurisdictions.
2017 legislation work plan of the State Council
As highlighted in KPMG China Tax Weekly Update (Issue 10, March 2017), Mr. Zhang Dejiang, the chairman of the Standing Committee of the National People’s Congress (NPC), delivered the committee’s work report on 8 March 2017. In this he indicated that, in 2017, China will put existing State Council regulations, such as tobacco tax and vessel tonnage dues, on a statutory basis (i.e., to turn them into laws passed by NPC), will modify the small and medium enterprises promotion law and the securities law, and will enact the e-commerce law.
On 20 March 2017, the State Council issued Guo Ban Fa  No. 23, announcing the 2017 legislation work plan of the State Council. The plan includes 31 urgent items required for deepening reform, as well as 22 items that are aimed to be completed within 2017.
It might be noted that, within the 31 urgent items, alongside the tobacco tax law and vessel tonnage dues law, the revised tax collection and administration (TCA) law is also identified as an urgent item targeted for completion as soon as is practicable. This shows that the central government has prioritised the revised TCA law as one of the top priorities on their to-do-list, and it is expected that the TCA law will be finalised in the near future, most probably within 2017.
* As early as 2015, the legislative office of the State Council had started to solicit public input on the revised TCA law. The revised TCA law would be a significant revision since the existing version was introduced in 1992. The revised version intends to : (i). clarify taxpayer responsibility for self-filing; (ii). clarify tax authority responsibilities in relation to determining tax liabilities; (iii). allow for private tax rulings on a generalized basis in China; (iv). increase required disclosures of tax-related information. In addition, changes will be made, inter alia, to penalty levels and to the statute of limitations.
** It might also be noted that the reform of the individual income tax (IIT) law and real estate tax (RET) legislation, has yet to be included in this State Council plan. Senior Chinese officials had indicated the government’s broad intentions in relation to the IIT reform and RET legislation at press conferences held on the sidelines of the 5th session of the 12th NPC, please refer to KPMG China Tax Weekly Update (Issue 10, March 2017) for more details.
China to liberalize rules for foreign-invested banks
Under the current regulatory regime, it is unclear that whether foreign-invested banks may undertake businesses in certain business areas. In a circular (Yin Jian Ban Fa  No.12) issued by the China Banking Regulatory Commission (CBRC) on 10 March 2017, the business areas that foreign-invested banks are allowed to engage in are clarified. This covers wholly foreign-invested banks, Chinese-foreign joint venture banks and foreign bank China branches, referred to below as “foreign-invested banks in China”, and such allowable business areas include:
- Foreign-invested banks in China, excluding foreign bank China branches, may provide treasury bonds underwriting services, custody services and consultancy services (e.g. financial consultancy services), and no specific license from CBRC is required. Instead, foreign-invested banks in China only need to report regularly to CBRC in relation to such business activity.
- Foreign-invested banks in China may arrange, together with their offshore parent bank groups, to provide a package of comprehensive finance services to “going out” Chinese enterprises. This may include offshore bond issuance, listing, merger and acquisition as well as financing services. Foreign-invested banks in China shall, on an annual basis, report to the Chinese regulatory authorities on their responsibilities and profit distributing mechanism in the cooperation with their parent bank groups.
- Foreign-invested banks in China, excluding foreign bank China branches, may invest in domestic banking financial institutions if the relevant risks can be controlled. That is, a foreign bank may invest in domestic banking financial institutions, through either its offshore parent bank or its corporate bank incorporated in China, provided such investment is in compliance with the existing PRC laws and regulations.
China to further reduce “non-tax” fiscal burdens
As highlighted in KPMG China Tax Weekly Update (Issue 10, March 2017), Premier Li Keqiang delivered the 2017 Report on the Work of the Government, at the opening of the 5th session of 12th National People’s Congress (NPC) on 5 March 2017. In this he noted that China will significantly reduce enterprise “non-tax” fiscal burdens, which means reducing and regularizing the imposition of various local government fees and mandatory contributions to governmental funds. To put the above into action, on 15 March 2017 the Ministry of Finance (MOF) issued a circular (Cai Shui  No. 18, Circular 18), announcing the abolition/adjustment of certain contributions to governmental funds starting from 1 April 2017:
- Abolish Urban Public Utilities Surcharge (UPUS) and New Wall Materials Special Fund (NWMSF) - UPUS are currently being levied in cities that are chartered by the State Council while NWMSF are being levied in all locations where applicable.
- Adjust policies for collection of handicapped indemnification fee (HIF) for employment of disable persons
- Expand the number of small enterprises that are exempt from HIF. Under the existing rules, small enterprises with not more than 20 employees can be exempted from HIF, for the three years from the date of their business registration. Now, MOF has decided to expand the number of enterprises covered by this preferential treatment by providing that small enterprises with no more than 30 employees are also covered.
- Establish an upper limit for HIF impositions. Under the existing rules, HIF impositions for an enterprise shall be calculated as the mathematical product of (i) the number of employees and (ii) the percentage difference between the number of disabled employees in the preceding year (as a proportion of total staff) and the local government-set benchmark percentage (this may vary across locations but must be at least 1.5%) and (iii) the annual average salary of employees in-service. An upper limit has been set on HIF impositions by determining the second number as follows:
(i). for enterprise whose yearly average wage for employees in-service is below three times the local average wage, the HIF will be collected based on employee’s yearly average wage; and
(ii). for enterprise whose yearly average wage for employees in-service is at least three times the local average wage, the HIF will be collected based on three times of the local average wage.
- In 2016, a Chinese company has 96 qualified employees (all earning 3 times the local average wage). Each of the 96 employees get paid RMB1. The three times of the local average wage in 2016 was RMB0.8
- The Chinese company did not employ any disable employee in 2016, and the benchmark is 1.5% where the company is located
- HIF needs to paid in 2017 = 96 (i.e. total number of employees) x (1.5% - 0) x 0.8 = RMB1.15
- RMB1.15 can be deducted from the taxable income of the company for CIT purposes
- Each region, during the 13th Five-Year-Plan period (i.e., 2016 to 2020), may determine the exemption and suspension of, and relief for, local water conservancy construction funds and local reservoir immigration support funds at will – this is a new development.