In November 2008, the State Council issued amended Provisional Business Tax Regulations, and in December the same year, the Ministry of Finance and the State Administration of Taxation jointly issued revised Implementation Rules for Provisional Business Tax Regulations.

Under the amended rules, business tax applies to services if either the service provider or the service recipient is located in China, without regard to where the service is actually being rendered.

"As long as the service provider or service recipient is located in China, the service will be taxable for business tax purposes, regardless of whether they are onshore or offshore services."

Xu said the tax burden on many companies was excessive, pointing to circulation taxes, which include business tax, stamp tax, municipal maintenance and construction tax, and educational fees surtax.

"For instance, insurance businesses are taxed the 'business tax' according to the insurance industry rates, and then are taxed the municipal maintenance and construction tax, and the educational fees surtax, based on that business tax amount."

According to Xu, changes in China's business tax rules will increase the amount of tax paid by multinational service providers with clients in China.

"Service providers need to consider modifying billing arrangement with Chinese clients by charging business tax from Chinese clients or arranging for the overseas office to bill and collect the payment from their Chinese clients' international affiliates," he said, adding "I hope the rate of business tax will go down."