China Clarifies the Offsetting of Overdue Taxes with Refundable Taxes

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Sept. 27 – China’s State Administration of Taxation released the “Announcement on Issues Concerning the Offsetting of Overdue Taxes with Refundable Taxes (Announcement of SAT [2013] No. 54, hereinafter referred to as ‘Announcement’)” on September 16, which clarifies issues relating to the offsetting of overdue taxes with refundable taxes. Detailed information can be found below.

According to the Implementing Rules on the Administration of Tax Collection, where a taxpayer has both refundable taxes and overdue taxes, the relevant tax authorities may offset the refundable taxes and the interests thereof against the overdue taxes and refund the balance, if any, to the taxpayer.

Recently, there have been different opinions on whether the above-mentioned measure governing the offsetting of overdue taxes with refundable taxes belongs to the compulsory enforcement measures. With the view to fully and properly carry out the enforcement measures, issues relating to the offsetting of overdue taxes with refundable taxes have been clarified as follows:

China’s Tax Collection Law provides that where a taxpayer engaged in the production or business operations fails to pay or remit taxes within the prescribed time frame, the tax authorities shall order the taxpayer to pay the taxes within a fixed period of time. Where the taxpayer fails to pay the taxes within the prescribed time, the tax authorities may enforce the following compulsory enforcement measures:

  • Sending a written notification advising the bank or other financial institutions with which the taxpayer holds an account to withdraw funds from the taxpayer’s deposits; or
  • Seizing of, sealing up, and selling off of commodities and goods or other property of the taxpayer to the value equivalent to the amount of tax payable, and offsetting the proceeds therefrom against the amount payable.

The method of offsetting overdue taxes with refundable taxes is a tax settlement system used by the tax authorities to determine the tax liability of a taxpayer. It does not involve withholding taxes from the taxpayer’s deposits or other enforcement measures such as seizing, sealing up, auction or selling-off.

After offsetting the overdue taxes with refundable taxes, the remaining balance shall be refunded to the taxpayer. Where there are still taxes in arrears after the offsetting and no payment has been made within the prescribed time frame, the tax authorities will adopt the compulsory enforcement measures. As such, the measure that involves offsetting overdue taxes with refundable taxes does not fall under the administrative compulsory enforcement measures.

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