Tax & Accounting

The BEPS Action Plan in China and Hong Kong: Impact Assessment for Foreign Enterprises

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By Jake Liddle

In October 2016, Hong Kong’s government issued a consultation paper for implementing measures to counter base erosion and profit shifting (BEPS) in the region.

BEPS refers to tax planning strategies that exploit discrepancies in tax laws in order to shift profits to jurisdictions where there are lower tax rates, often tax havens. While some methods are illegal, many are not, and can disrupt domestic market competition and undermine taxation systems. Because of their reliance on income tax, BEPS is particularly relevant to developing countries. The Organization for Economic Co-operation and Development (OECD) and G20 countries have formed an ‘inclusive framework’, which implicates over 100 jurisdictions to cooperatively implement the OECD/G20 BEPS package, a tool that provides governments with the means to tackle BEPS on domestic and international levels.

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Case Study: Capital Increases and IIT Calculation During Equity Transfers in China

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By: James Zheng
Editor: Jake Liddle

Equity transfers are a common component of the mergers and acquisitions process. Taxation of equity transfers are often a complex issue; if entities have incorrectly calculated their tax obligations, then they risk being reprimanded by tax authorities. In this article, a case study will provide a scenario exploring several issues that hinder clear tax declaration when executing an equity transfer.

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Understanding China’s VAT Accounting Guidelines

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By Dezan Shira & Associates
Editor: Tongyu Zhang

On December 3, 2016, China’s Ministry of Finance (MOF) issued regulations on accounting treatment of Value-added tax (VAT), which immediately came into force from the date of issuance. The latest regulations are presented as guidelines for companies to handle accounting adjustments in advance of the annual reporting deadline. The regulations modify the sub-items under the “tax payable” category, clarify the presentation method of these items in financial statements, and standardize the accounting handling methods for VAT-related businesses. Note that transactions concluded during the period from May 1, 2016 to the effective date of the regulations, whose assets and liabilities are affected, shall be adjusted according to the new regulations. The regulations will prevail if inconsistent with the national unified accounting system.

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An Overview of China’s VAT Reform

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By Dezan Shira & Associates
Editor: Alexander Chipman Koty

Hailed as China’s most significant tax reform in over two decades, the value-added tax (VAT) was comprehensively implemented as the country’s only indirect tax in 2016, effectively replacing the business tax (BT) that previously applied to a number of industries. The reform is part of Beijing’s efforts to restructure the Chinese economy from one driven by labor-intensive manufacturing to one that is service-oriented by easing the tax burden on service industries, which have historically paid a disproportionate share.

In 2015, services made up more than half of China’s GDP for the first time, and are growing at a faster rate than any other sector of the economy. The Chinese government envisions the VAT reform to further propel growth in services and consumption as the country pivots away from the low value-added industries. The broader introduction of the VAT is also designed to encourage low-end manufacturers to upgrade their technology and capabilities, and to invest in research and development in order to move up the value chain.

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Understanding China’s Tax Offenders Blacklist System

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By Dezan Shira & Associates
Editor: Tongyu Zhang

On April 16, 2016, China’s State Administration of Taxation (SAT) published amended measures to what is known as the blacklist system against tax illegalities, which came into effect on June 1, 2016. The amended measures add a credit repair mechanism to the original system. The SAT describes the updated measure as a ‘one body and two wings’ structure, with ‘one body’ standing for the tax credit system and ‘two wings’ referring to the disclosure of information system, and the joint punishment and administration imposed by relevant authorities and institutions.

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Import-Export Taxes and Duties in China

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By Dezan Shira & Associates
Editor: Ari Chernoff

Editor’s note: This article was originally published on March 11, 2013, and has been updated to include the latest regulatory changes.

Over the course of 2016, the Chinese government promulgated a series of new regulations affecting companies that import and export taxable goods and services in China. These new regulations expand on previous import and export taxes and duties, which vary depending on the products involved.

However, at the center of this intricate system is a central list of general principles for foreign companies to abide by. Below, we outline the most significant issues relating to these taxes and duties that foreign companies should take note of.

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An Overview of Transfer Pricing in China

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By Dezan Shira & Associates

Transfer pricing has fast become one of the standout issues in international taxation. Put simply, the practice concerns the price charged for intercompany transactions between entities in different tax jurisdictions. These transactions can be used to shift funds within a multinational company (MNC), making transfer pricing an effective means to manage a firm’s finances and remit its profits.

As more international companies began to pour into China following its opening up period in the late 1970s, the need for a transfer pricing regime that could effectively collect tax on intercompany transactions and prevent tax base erosion became increasingly apparent. Legislation on transfer pricing in the Middle Kingdom therefore has a relatively long history that stretches back to the early 1990s, but the majority of this has been piecemeal, and it is only in the last ten years that the country began implementing comprehensive regulations. 2016, in particular, has seen the release of new laws that have revamped transfer pricing compliance for MNCs in China.

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Evaluating China’s VAT Reform – New Issue of China Briefing Magazine

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CB 2016 11 issue_Cover_250x350The latest issue of China Briefing Magazine, titled “Evaluating China’s VAT Reform“, is out now and currently available to subscribers as a complimentary download in the Asia Briefing Publication Store.

Contents

  • An Overview of China’s VAT Reform
  • Navigating VAT Breaks in China’s Crossborder
    Services Industry
  • Expert Commentary: Expenses not
    Eligible for China’s Special VAT Fapiao

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