CHINA Law and Practice Contributed by: Mei Zhang, DaHui Lawyers
1. Sources and Principles 1.1 Domestic Sources of International Tax Law The international tax law applicable in Mainland China is derived from a combination of domestic and inter - national sources of authority. The domestic legal framework for international taxa - tion primarily consists of the following: • Constitutional provisions – The Constitution pro - vides the fundamental legal basis for the state’s tax sovereignty. • Tax statutes – Key legislation, such as the Law of the People’s Republic of China on the Admin - istration of Tax Collection (“PRC Tax Collection and Administration Law”) is a foundational law for issues regarding tax collection and administration. It governs the levy and payment of taxes, protects both national tax revenue and taxpayers’ rights, and forms the essential domestic legal basis for implementing international tax rules. Furthermore, international taxation-related provisions, such as the anti-avoidance clauses in the Corporate Income Tax Law of the People’s Republic of China (“PRC CIT Law”) and the Individual Income Tax Law of the People’s Republic of China (“PRC IIT Law”), also form the foundation of China’s interna - tional tax framework. • Administrative rules and interpretations – Detailed implementation is guided by administrative tax cir - culars, rules, and interpretative documents issued by the State Taxation Administration (“STA”). These documents provide the practical operational guidelines for applying both domestic tax laws and international tax agreements. China’s international tax obligations and co-operation frameworks originate from the following instruments: • Bilateral double taxation agreement (“DTA”) – Chi - na has established an extensive treaty network by signing comprehensive DTAs with over 100 coun - tries and regions. • Special regional arrangements – Reflecting the “one country, two systems” principle, the Main - land signed special double taxation arrangements
with the Hong Kong Special Administrative Region (“SAR”) and the Macao SAR. These are functionally equivalent to DTAs and facilitate cross-border tax co-ordination within the nation. • Multilateral tax conventions – China’s active participation in international tax conventions has established a vast framework that facilitates cross- border tax co-ordination and prevents tax base erosion. Case law does not feature prominently within the tax law system of China, a civil law country. 1.2 Hierarchy of Sources In academic discussions of international tax law, its sources are generally categorised into the following four types: • DTAs – among the four sources of international tax law, bilateral and multilateral tax treaties are the most substantive. • Treaties and agreements – legal norms governing global tax co-ordination within other international conventions, treaties and agreements, such as in trade agreements or treaties of friendship, com - merce and navigation. • International customary tax law – this refers to universally accepted practices that serve as the unwritten rules of conduct in international tax rela - tions. • Soft law – normative documents endorsed by inter - national organisations. Whereas domestic tax law regulates tax collection and the relationship between the state and taxpay - ers (domiciled and foreign taxpayers), international tax law primarily governs the co-ordination of taxing rights between states. International and domestic tax law are functionally interdependent. International tax law takes precedence over domestic tax legislation. Article 58 of the PRC CIT Law and Arti - cle 91 of the PRC Tax Collection and Administration Law explicitly stipulate that if a tax treaty or agreement involving the People’s Republic of China and a foreign country contains provisions different from those of the
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