China’s State Administration of Taxation Announces Tax Process Facilitation Measures
Authors: Rob Wagner & Michael To, Mazars Hong Kong
In addition to its efforts to reform or fine tune tax regulations in China, the People’s Republic of China (PRC) State Administration of Taxation (SAT) is determined to streamline the tax administration and compliance procedures to offer taxpayers a more modern and user-friendly system. On its website on April 1, the SAT announced three measures to facilitate the taxpayer compliance process.
Measure 1 – Improved VAT Invoice Management System
There are two categories of VAT invoices in China: general and special. General VAT invoices only can be used as support for income tax deduction but not for input VAT credit purpose, while special VAT invoices are valid not only for income tax deduction but also to serve as supporting documents for VAT credit input purposes. Historically, due to technological limitations, the PRC’s online VAT invoice management system only can monitor issuance of special VAT invoices. The old invoice management system also reportedly could only collect limited information from the special VAT invoices.
The SAT has been upgrading its VAT invoice management system since June 2014. The improved system now can handle general VAT invoices, collect more transaction information and implement real-time control. Simply put, all issued VAT invoices have records in the tax authorities’ management system; those without records in the system are treated as illegitimate invoices for tax reporting purposes.
The new system has been in trial run in Shanghai, Tianjin, Shandong and Hunan since November 2014, and the result has been satisfactory. Accordingly, the SAT implemented the new system nationwide on April 1, 2015. The SAT also specified different requirements for the use of invoices as well as the invoice system.
The SAT said the new invoice management system represents the PRC tax authority’s move to the big data era, as well as application of the “Internet +” concept, to improve the effectiveness of control and efficiency of the tax process.
Measure 2 – Upgrade of Taxation Services Standard
It is not uncommon for taxpayers in China to face different treatment options or spend different amounts of time for identical tax issues across different regions.
To tackle the issue, the SAT created a Code for Taxation Services of County-Level Tax Authorities, which was put into trial run on October 1, 2014. The SAT is aiming for a unified tax process and identical basic taxation services for taxpayers. While the code is not currently on the SAT website, the involved areas cover tax registration and assessment of certain qualifications, e.g., general VAT payer, tax filing, etc., at the initial phase. With the launching of the code, taxpayers reportedly are required to submit less information and can better handle the tax process.
The code was extended to provincial- and municipal-level tax authorities on March 1, 2015. In April, the latest version was extended to cover all tax bureaus throughout China.
Measure 3 – Abolishment of Tax Administrative Approvals
The SAT abolished 14 tax administrative approval procedures. The list, published in Shuizongfa No. 45 on April 2, 2015, includes assessment of general VAT payer status and certain VAT preferential treatments. The SAT says follow-up management measures will be implemented once the approval requirement for those items is removed.
In Shuizongfa No. 74 (Circular 74), the SAT also announced plans to abolish certain tax nonadministrative approval items in response to the state council’s decision. Circular 74 covers some eye-catching items, including the approval of preferential tax treatment on nonresidents under tax treaties, approval of whether an enterprise’s cost allocation agreement is in line with arm’s-length principles and approval of special tax treatment for enterprise restructuring under Caishui No. 59 and SAT Public Notice 2010 No. 4. The mentioned approval procedures generally are not straightforward for general taxpayers, most of whom welcome their removal. The SAT may issue additional circulars to comment in more detail on how it monitors and controls those treatments without the approval procedures. (The SAT already issued Public Notice No. 45, effective July 16, 2015, to specify the control of cost allocation agreement like the timing of submission of agreement to tax bureau and follow-up management measures, i.e., special tax investigation and adjustment for cost allocation agreements not being in line with arm’s-length basis.) Taxpayers interested in those topics or treatments should stay tuned for future development of corresponding follow-up management measures.
The SAT will undoubtedly continue relaxing and streamlining the tax process in different areas. That said, during the initial phase, different practical issues may arise when implementing the new measures. Taxpayers who are uncertain about or unfamiliar with the measures should discuss these issues with their tax advisors.