China’s SAT Issues Opinion on International Taxation System

China’s State Administration of Taxation (SAT) recently issued the “Opinions on the Construction of the Administrative System of International Taxation (hereinafter referred as the ‘Opinion’),” specifying guidelines for service and management in such fields as anti-avoidance, taxation of non-residents, taxation issues facing Chinese enterprises investing abroad, and cooperation mechanisms for international taxation. This is the first document regarding international taxation issued by the SAT.

Major tasks for Chinese tax authorities

Tasks for the SAT

1. The SAT is responsible for related international taxation legislation, including the signing and revising of taxation agreements, anti-avoidance, taxation of non-residents, and taxation issues regarding Chinese enterprises investing abroad.
2. The SAT is in charge of organizing and managing the taxation of non-resident enterprises and individuals, as well as the taxation of Chinese enterprises and individuals investing abroad.
3. The SAT shall carry out anti-avoidance investigations, advance pricing arrangements and multi-lateral talks regarding international taxation, as well as coordinate communication and cooperation on international taxation with other countries, as well as Hong Kong and Macau.

Tasks for local tax authorities

1. Local tax authorities should coordinate and manage the international taxation issues in their respective regions.
2. Local tax authorities should be responsible for anti-avoidance management and major cross-border taxation management.

Anti-avoidance and taxation of non-residents
According to the Opinion, the government is going to put emphasis on the management, service and investigation of anti-avoidance. In the meantime, an effective anti-avoidance prevention mechanism will be set up to improve the current anti-avoidance system.

In terms of non-resident taxation, the government will follow the principles of tax jurisdiction, strengthen the taxation management of income generated within the territory of China by non-resident enterprises and individuals, and improve the management mechanism.

Taxation issues regarding Chinese enterprises and individuals investing abroad
As is stated in the Opinion, the government will strengthen the management of domestic enterprises investing abroad under the requirement of “detailed investigation, improved policies, optimized service, and strengthened management.”

The government will try to seek detailed and comprehensive information regarding international investment, income generated abroad, and related taxation issues regarding Chinese enterprises and individuals. A tax-related filing record for these enterprises and individuals will be built.

The SAT will also actively research and improve taxation policies for related enterprises and individuals. For government-encouraged investment abroad, the SAT will research and implement more favorable policies, such as improving the tax confirmation, tax exemption and tax rebate system.

Moreover, related tax authorities are dedicated to helping domestic enterprises investing abroad to learn about the taxation systems of the investment destination countries, and providing legal assistance for enterprises and individuals to reduce their investment risks.

According to SAT officials, the Opinion is issued based on the ever-changing international and domestic economic situation. With the acceleration of globalization and the internationalization of tax sources, more and more competition is arising between countries to fight for tax revenues. The tax avoidance situation has become grim among many multi-national corporations. As a result, international and national tax authorities should strengthen the management of international taxation. The issuance of the Opinion is part of China’s efforts for a better regulated international taxation regime.

Domestically, the 12th Five-Year Plan puts emphasis on drawing in more foreign investment and encouraging more investment abroad, which will create new challenges for international taxation management in China.

The SAT proposes to professionalize the management of tax sources, actively advance innovations in tax collection and administration, and build up an effective management mechanism for international taxation in China.

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