CHINA Law and Practice Contributed by: Mei Zhang, DaHui Lawyers
Project and is integrating its outcomes into domes - tic practice. Key implementation areas include: (a) TP documentation – adopting the three-tiered standardised approach (master file, local file, and country-by-country report); (b) addressing the digital economy – engaging in Two-Pillar Solution negotiations to reform the international tax architecture for the digitalised age; and (c) dispute resolution – enhancing mechanisms for the mutual agreement procedure (“MAP”) to resolve cross-border tax disputes efficiently. 5.3 Blacklists and Non-Cooperative Jurisdictions China has not adopted a unilateral list of non-coop - erative tax jurisdictions. However, in line with global efforts against BEPS, it actively monitors and scru - tinises transactions involving high-risk jurisdictions, particularly those characterised as offshore financial centres or low-tax territories, to safeguard its tax base. 5.4 Reporting Obligations and Disclosure Regimes China has established a comprehensive reporting regulatory regime to ensure tax compliance in cross- border activities, imposing specific reporting and disclosure obligations on taxpayers, financial institu - tions, and other intermediaries. The core pillars of this framework are outlined below. • Related-party reporting: China has established a reporting obligation system covering taxpayers, financial institutions and other relevant entities. Enterprises with cross-border related party trans - actions must submit a “Report Form on Related Party Transactions” with their annual CIT settle - ment, disclosing the transaction parties, amounts and pricing methods. Eligible enterprises must also prepare three sets of TP documents, the main entity document, local documents, and special matters documents to prove their compliance. • Treaty benefit claims: Non-resident taxpayers seek - ing to apply preferential withholding tax rates under a DTA must file the requisite forms (eg, Non-Resi - dent Taxpayer’s Claim for Treaty Benefits) with the tax authorities for reporting or advance ruling.
• Outbound payment filing: Domestic enterprises making overseas payments (over USD50,000 per time) for service fees, dividends, interest, royalties, etc, are required to complete a tax filing (record filing or tax clearance) for such outbound remit - tances. • E-commerce platform reporting: Under the Regu - lations on Tax Information Reporting by Internet Platform Enterprises, cross-border e-commerce platforms must report the identity and transac - tion details of sellers on their platforms to the tax authorities every quarter, bearing legal responsibil - ity for the accuracy of the information provided. • CRS compliance: Chinese financial institutions are mandated to conduct due diligence on financial accounts held by non-residents and annually report the related account information to the State Taxa - tion Administration by 31 May. China automatically exchanges this information with over 100 jurisdic - tions. 5.5 Role of Tax Authorities and Enforcement Measures Chinese tax authorities are vested with extensive powers to ensure tax compliance, combat illegal activities (such as tax evasion and fraud), and monitor the fulfilment of obligations by taxpayers, withholding agents, and other relevant parties. These powers are exercised through domestic and cross-border inspec - tions, which typically involve the examination of rel - evant transactions, accounts and documentation. The key investigative tools are as follows: • Right to inspect documents – the right to access taxpayers’ and withholding agents’ books, accounting vouchers, statements, and other tax-related documents (including electronic docu - ments), which may be copied and sealed; relevant information on overseas affiliated companies may be obtained through international information exchange. • Right to conduct on-site inspections – to inspect taxable goods, commodities, or other property at taxpayers’ production and business centres; to verify on-site evidence of cross-border transac - tions, including goods transportation, warehousing and customs declaration.
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