CHINA Law and Practice Contributed by: Mei Zhang, DaHui Lawyers
ing protocols such as MAP, to ensure that both frameworks work together cohesively for cross- border tax. • The Notice of the State Administration of Taxation on Issuing the Rules for the International Exchange of Tax Informationsets forth the administrative procedures governing tax information exchange between China and other jurisdictions. International Treaties: the Legal Backbone of Multilateral Co-Ooperation • OECD Multilateral Convention on Mutual Admin - istrative Assistance in Tax Matters: China first signed the convention in 2013, and as the world’s most comprehensive instrument for international tax co-operation, the convention provides China with a robust multilateral legal framework on which to exchange tax information with more than 100 contracting parties. • MLI: Serving as a comprehensive package of mul - tilateral BEPS countermeasures, the MLI modern - ises China’s bilateral tax treaty network by incorpo - rating updated provisions on anti-treaty abuse and international dispute resolution. • DTAs: China has signed DTAs with more than 100 countries and regions; these agreements not only prevent evasion of taxes and double taxation, but their information exchange provisions (usually referencing OECD or UN model agreements) also serve as the legal foundation for tax authorities in requesting and providing sensitive tax information. 7.2 Exchange of Information Clauses in Tax Agreements China is a participant in the CRS and thus in automatic information exchange. China regularly and automati - cally exchanges cross-border financial account infor - mation with other signatories from over 100 jurisdic - tions to effectively prevent cross-border tax evasion. 7.3 Other Forms of International Tax Collaboration In addition to MAPs and advance pricing agreements (APAs), China actively participates in other important multilateral co-operation arrangements, especially in the Belt and Road Initiative Tax Administration Coop - eration Mechanism (BRITACOM), which was initi - ated and is led by the State Taxation Administration
of China. Established in April 2019, this mechanism is an official, non-profit multilateral tax co-operation platform aimed at strengthening cross-border tax co- operation among countries and regions along the Belt and Road Initiative through “consultation, joint con - struction, and shared benefits”, optimising the busi - ness environment and promoting trade facilitation. Currently, China has not formally joined the OECD’s International Compliance Assurance Programme (ICAP) nor implemented joint and simultaneous tax audits. 8. Mutual Agreement Procedures and Arbitration 8.1 Availability and Legal Basis China has established and is operating a MAP pro - gramme. The legal framework of this programme con - sists of domestic law and international treaties. MAPs specifically address double taxation resulting from TP adjustments in related-party transactions, such as unreasonable increases or decreases in profit distribution by foreign tax authorities leading to excessively high income tax rates. The programme’s legal basis includes DTAs, China’s Measures for the Administration of Adjustments under Special Tax Investigation and Mutual Consultation Procedures, and the OECD TP Guidelines. At its core, it is based on the arm’s length principle and the rule of “taxing profits where value is created”, correcting improper profit distribution. 8.2 Application Deadlines According to the Announcement on Issuing the Imple - mentation Measures for the Mutual Agreement Pro - cedure of Tax Treaties, when an applicant submits a mutual consultation application in accordance with the provisions of this chapter, the application must be submitted within the time limit stipulated in the DTA. Most tax treaties give applicants three years from the date of the first time they were aware of the non- compliant tax measures. However, some DTAs have a time limit of less than three years, such as the one-
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