According to news posted on the OECD website on 1 August 2017, the Platform for Collaboration on Tax – a joint initiative of the IMF, OECD, UN and World Bank Group – has developed a draft toolkit designed to help developing countries tackle the complexities of taxing offshore indirect transfers (OITs) of assets. The Platform partners seek comments by 25 September 2017.
The toolkit focuses on OITs of immovable assets, seen to be a major issue for developing countries. These involve the establishment of a chain of overseas companies above the immovable-owning company – exit from the investment is via the sale of one of the offshore companies, the disposal gains from which would fall outside the normal source taxing jurisdiction of the country in which the immovable are located.
It is recognised that the OECD/G20 BEPS work did not cover OITs and the draft toolkit aims to assist developing countries design effective rules. The toolkit:
The draft toolkit outlines two main approaches for enforcing of taxation of OITs by the country in which the asset is located.
China’s State Administration of Taxation (SAT) has guidance in place to regulate offshore indirect transfer of assets, which follows the Model 2 approach:
In 2015, the Ministry of Finance (MOF) and SAT issued circular Cai Shui  No. 35 [‘Circular 35’]. This granted a VAT exemption for the bonded delivery of crude oil futures, transacted for through the Shanghai International Energy Exchange (“INE”). The bonded delivery must occur within a Customs Special Supervision Area or at a bonded supervision premises. These are nationally designated special zones.
The process of bonded delivery transaction of crude oil futures is as below:
Building on Circular 35, on 28 July 2017 the SAT issued Announcement  No. 29 (“Announcement 29”), to clarify the administration of the VAT exemption. Announcement 29, effective from date of issuance, states:
On 7 August 2017, MOF and SAT jointly released the draft Vehicle Purchase Tax (VPT) Law (“the Draft”) to solicit public comments (by 6 September 2017). Placing existing Chinese taxes on a statutory basis is part of a wider Chinese government effort to reinforce the ‘rule of law’. Taxes such as arable land occupation tax and VAT are also undergoing a similar transition.
VPT is currently based on 2001 State Council-issued rules and these will be replace by statutory law issued by the National People’s Congress (NPC). Under the current rules, VPT is levied, at 10% of taxable price, on the acquisition of a taxable vehicle for personal use through purchase, import, self-manufacture, gift, prize-winning or any other method. In addition to the VPT, vehicles in China are also subject to vehicle and vessel tax (VVT), which has been put on statutory basis since 2012. At the stage of import and sales of vehicles, taxes such as customs duty, VAT, consumption tax, and stamp duty may also be triggered.
The framework of the existing VPT, and the VPT tax burden, will remain basically unchanged. However, in the Draft, there are still some notable adjustments:
Recent business media reports have observed that the People’s Bank of China (PBOC) on 4 August 2017 issued a requiring non-financial institutions providing online payment services (referred to as “third-party online payment service providers”) to operates through a centralised clearing house*, starting from 30 June 2018.
Currently, third-party online payment service providers, such as Alipay (under Alibaba Group) and Tenpay (under Tencent Group), maintain separate bilateral relationships with commercial banks to facilitate payments to or from users’ bank accounts. Under this model, banks cannot obtain payment details, such as the merchant’s name and location. It is consequently difficult for the PBOC to carry out anti-money laundering and financial regulation supervisory activities. The 4 August PBOC notice now requires all third-party online payment service providers to connect to a 2016-established national clearing house before 15 October 2017 and to clear all payments through it from 30 June 2018. This will facilitate PBOC oversight.
* The clearing house was built upon a 2016 circular which was jointly issued by PBOC and other 13 government agencies including, inter alia, the National Development and Reform Commission (NDRC), MOF, and the State Administration for Industry and Commerce (SAIC). The circular provided that non-banking payment institutions must clear inter-bank payments through the PBOC clearing system or authorized clearing institutions. The clearing house enables all payments to be conducted in a transparent and centralised way.
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