The State Administration of Taxation (SAT) will amend anti-tax
avoidance clauses within the year, Beijing News quoted an
official as saying last Friday.
The administration plans to renew and adjust its definitions of
relationships between companies, add a new clause that curbs tax
avoidance through tax havens (applying to foreign holding companies
as well) and a new clause that limits capital weakening.
Foreign firms avoid 30 bln yuan tax
Su Xiaolu, an SAT expert specializing in anti-tax avoidance
research, estimated that foreign firms avoid paying 30 billion yuan
in tax in China.
He listed frequently used methods as reduced transfer prices,
tax havens, capital weakening, carrying profits forward and taking
advantage of loopholes in turnover tax collection procedures and
local favorable tax policies.
Of them, he said reduced transfer prices among related
enterprises were most frequently used.
His estimate is based on the number of foreign-funded
enterprises in China?-- over 480,000?-- and their
combined annual reported losses two years ago of over 120 billion
yuan (US$14.85 billion).
Su speculated that current losses would be even higher now,
given the increasing number of foreign-funded businesses
nationwide.
Su said tax bureaus would prioritize supervision over companies
that: report large losses; have frequent transactions with those in
tax havens; have increasing revenue but are seldom profitable; or
have steadily growing revenue but small profit margins.
System set up to monitor transfer prices
The SAT has already amended some clauses of Taxation Management
Regulations on the Transactions Between Associated Enterprises and
the draft Working Procedures Concerning Tax Audit on the
Transactions Between Associated Enterprises.
The first regulation stipulates that when dealing with cases
concerning transnational companies, tax bureaus can go abroad to
investigate with SAT approval. Related information can also be
collected through Chinese economic institutions in foreign
countries.
Currently, the SAT has established a transfer price audit
system, and it will conduct investigations according to
enterprises’ financial reports.
The administration will primarily select over 10,000 enterprises
nationwide, whittle this down to 1,500-2,000, and then finalize the
list of key industries and key enterprises for audit each year.
It will then conduct on-the-spot audits, negotiations and
administrative reconsideration of their situation with regard to
tax.
(China.org.cn by Tang Fuchun, December 2, 2005)