Elimination of Tax-related Administrative Approvals in China

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The State Council of China has recently issued several decisions for the purpose of further decentralization and the abolishment of tax administrative approval and registration requirements.

On January 28, 2014 and February 24, 2015, the "Decision of the State Council to Abolish Certain Administrative Approval Requirements or to Delegate Certain Items to Lower Authorities" (Guo Fa [2014] No. 5) and the "Decision of the State Council to Abolish and Adjust Certain Administrative Approval Requirements” (Guo Fa [2015] No.11) respectively were issued by the State Council for the
cancellation of four administrative approvals and the adjustment of approval authority for certain administrative approval items in relation to cross-border tax.

On April 17, 2015, China’s State Administration of Taxation (SAT) issued “Bulletin of Amendment of Several Documents Including ‘Administrative Measures for the Assessment and Levy of Enterprise Income Tax on Non-resident Enterprises’” (Bulletin [2015] No. 22) to amend three previously issued SAT documents in order to adapt to the elimination of the four above-mentioned administrative approvals and to strengthen any follow-up management issues.

Firstly, Bulletin [2015] No.22 amended Article 9 of Administrative Measures for the Assessment and Levy of Enterprise Income Tax on Non-resident Enterprises (Guo Tax Fa [2010] No. 19) as detailed below:

“Competent tax authorities shall deliver the “Identification Form on Collection Methods of Non-resident Corporate Income Tax” (“Identification Form”) timely to non-resident enterprises, who shall complete and submit the Identification Form within 10 working days of its date of receipt. The competent tax authorities shall confirm the method for collection of the non-resident corporate income tax within 20 working days of the date of the Identification Form’s acceptance.”

Prior to the amendment of Bulletin 22, a non-resident enterprise intending to be taxed on a deemed income basis must complete an Identification Form and submit the form to its competent tax authority to obtain approval. Now, however, a non-resident enterprise is no longer required to submit the Identification Form proactively to the tax authority, because it is the competent tax authority that is required to provide the non-resident enterprise with the Identification Form on a timely basis. Furthermore, Bulletin [2015] No.22 has amended the Identification Form accordingly.

Secondly, Bulletin [2015] No.22 amended Article 5 of Administrative Measures for the Administration of Income Tax of Overseas Chinese Funded Holding Residents Enterprise (for Trial Implementation) (SAT Bulletin [2011] No. 45) as detailed below:

“The ‘competent tax authorities’ in the Measures refer to the tax authorities where major investors of overseas Chinese-funded holding residents’ enterprises are registered.”

Thirdly, Article 7 of the Announcement of the State Administration of Taxation on Issues concerning the Application of Special Tax Treatment in the Equity Transfer of Non-Resident Enterprises (SAT Bulletin [2013] No. 72) is amended as detailed below:

“Where a non-resident enterprise conducting cross-border transactions applies for special tax treatment but does not meet the criteria, namely, it did not perform the registration of the transaction timely with the responsible PRC tax authority, adjustments to the application of general tax treatment shall be made and the enterprise shall pay the corporate income tax in accordance with the relevant provisions. Where a non-resident enterprise conducting cross-border transactions applies for special tax treatment but is not yet put on records, the tax authority shall inform the enterprise to conduct the relevant procedures in accordance with Articles 2 and 3 of this Announcement.”

In accordance with this amendment, the competent tax authorities shall determine whether a transaction is suitable for special tax treatment by referring to matters including the treatment of duty free or deferred taxes and any substantive conditions that apply. Furthermore, the competent tax authorities shall have a duty to review and inform the taxpayers to conduct the necessary registration procedures and its substantive requirements when those taxpayers are non-resident enterprises conducting cross-border transactions applying for special tax treatment.

Bulletin [2015] No.22 will be effective as of June 1, 2015.

The issuance of Bulletin 22 is consistent with the State Council’s mandate to streamline and reduce administrative approvals, some of which lack a legal basis; therefore such reform to the tax administrative approval system is a progress. For instance, the State Council issued the Decision of the State Council to Abolish Certain Non-Administrative Approval Items " (Guo Fa [2015] No. 27) on May 4, 2015 to abolish approximately 50 tax-related administrative approvals. Following this, it is evident that taxpayers will need to change their attitudes to adapt to the new tax administration environment in China.

Xia Yu is an Associate in the MMLC Group.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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