China - Looking Ahead is a series of articles published by the International Tax Review in association with KPMG China. In this edition, our tax specialists examine recent developments in Chinese tax law and administration, and explore what the coming year may bring for enterprises conducting investment and business activity into and out of China.
Key thematic chapters in this edition look at, amongst other topics:
- Emerging new global tax framework: The BEPS 2.0 program is on the cusp of making major revisions to the international tax architecture. This work started with a focus on digitalization, but has now gone much wider, and could impact all large multinational companies (MNEs) with operations into and out of China.
- Transfer pricing: The China tax administration has continued its drive towards a more data-based transfer pricing (TP) enforcement approach. In parallel, greater support is being provided to businesses through improved mutual agreement procedure (MAP) and advance pricing arrangement (APA) programs.
- M&A Tax: Hot sectors for inbound investment, such as life sciences and logistics, are highlighting a number of novel tax due diligence issues. In the outbound space, an ongoing shift towards investment in Belt and Road Initiative (BRI) jurisdictions is being paralleled by the establishment of bodies to resolve tax frictions, and facilitate business activity, such as the BRI Tax Administration Cooperation Mechanism (BRITACOM).
- Individual Income Tax: In 2019, the major individual income tax (IIT) reform initiated in 2018 was reinforced with a string of clarifications, impacting on both Chinese tax residents as well as foreigners with exposure to China IIT.
- Trade and Customs: Against the backdrop of a changing global trade environment, China has pushed reforms to customs supervision, expanded the role of bonded zones, intensified the use of TP documentation for customs purposes, and sought to refresh key trade agreements.
- International Tax: In 2018/19 China signed a batch of new double tax arrangements, and amended existing ones, with new rules for permanent establishment (PE), tax transparency, and anti-avoidance. The BEPS-related PE changes require prudent risk management for both inbound and outbound activities.