Posted by Matthew on February 22, 2010 under Hwuason News | 
Over the last 7 days Asian Legal Business (ALB) released a 2010 China Watchlist – a list of firms that it predicts will be the big movers in 2010. I am pleased to note that Hwuason has made the 2010 list. Obviously, few lawyers do their work to achieve awards and we are more interested in pleasing our clients than receiving such recognition. However, this recognition is still pleasing for a firm like Hwuason that is not the biggest firm in China nor the most typical. Whereas the overwhelming majority of firms in China eschew specialisation, Hwuason has chosen to specialise in a very discrete and techical area – tax. This very much goes against the grain in China – there is a tendency here for firms, and lawyers themselves, to do any work that comes their way irrespective of their knowledge and ability in that particular area. This is actually one of the few frustrations I have about working in the legal field in China.
I very much admire Liu Tianyong, the Managing Partner of Hwuason, who four years ago recognised that the tendency in China of catchall firms was not appropriate for the practice of law in a more sophisticated legal environment and sought to focus his and his firms skills. Tianyong has also invested considerable recources into developing the tax law profession, Hwuason is the only specialist tax law firm in China, amongst graduates of China’s universities. For these reasons, and many others, there are days where I very much feel this firm is a pioneer and for this reason I am pleased Tianyong has received the recognition that he and the firm deserves.
Posted by admin on February 17, 2010 under Hwuason News |
As we noted a month ago, Hwuason was included on ALB’s Watchlist for 2010. A copy of the article can now be found here - China Watchlist 2010.
Posted by Matthew on February 5, 2010 under Individual Income Tax |
In China, past lenient tax practices resulted in poor tax practices. One in particular has been the practice of splitting employees salaries into two components (on-shore and off-shore) with only one being reported (the on-shore component) to the tax authorities in China. Where the employee was a foreign expatriate, depending upon the tax laws of that employee’s home country, this could result in a significantly lower overall tax burden for that employee. It was also not uncommon, and still is not uncommon, for local employees to have a portion of their salary paid off-shore, usually in a Hong Kong bank account. Using this method, employers could get away with paying an amount below what the market demanded because the employees’ after tax income would still be comparable with the after tax income they would have received had the employer paid them gross salary commensurate with the market value and not used such an arrangement.
The problems with such a strategy
In China’s tough new tax environment such arrangements as described above carry with them significantly increased risk, for both employers and employees, than previously. Despite once being relatively pervasive, such an arrangement is not a legitimate form of tax planning – it is tax avoidance pure and simple. At the very least, all employees should be aware of this and be provided with a sufficient understanding of the risks that they bear by accepting it. As the saying goes, ignorance of the law is no excuse. This is particularly an issue if the relevant employment contract, as nearly all contracts with respect to such arrangements do, contains a clause indicating that appropriate payment of taxation liabilities is the responsibility of the employee. Such clauses will make it difficult to raise an ignorance argument by the employee if the arrangement is later subject to investigation by the authorities. From the employer’s perspective, such clauses provide absolutely no protection and are effectively pointless. Employers, as withholding agents, have an obligation to withhold and remit tax to the tax authorities in accordance with Article 5 of the Provisional Measures on Withholding Individual Income Tax. A clause in an employment contract cannot alter this legal requirement.
Solution
Smart employers should adopt a remuneration strategy that complies with current tax regulations and also maximizes the organization’s overall recruitment goals. Competitive packages can be assembled that meet the overriding objective of reducing costs and that do not rely on the crude arrangements outlined above. When formulating a remuneration strategy, particularly in respect of localized foreign expatriates, employers should look at the overall cost of employment and work with the employees strike a balance between cash and non-cash benefits. China’s individual income tax regime provides various opportunities for flexible remuneration strategies.
Posted by Matthew on February 4, 2010 under China Tax |
The State Administration of Taxation (SAT) has just issued new measures (国税发[2010]11) (Guoshuifa [2010]11) for the purpose of handling complaints by taxpayers against the acts of officials that “infringe upon the legitimate rights and interests of the taxpayers”. These Measures were issued on 21 January and published on the SAT website yesterday.
The Measures cover various issues in relation to the handling of such complaints, including the scope that such complaints can cover, the submission and acceptance procedures of complaints, the procedures that should be followed by the investigating team and supervisory role of the national level SAT in the process.
This is the latest indication by the SAT that it intends to pursue greater transparency and accountability in China’s tax administration process. Perhaps, like the Taxpayers Charter of Rights and Obligations that were issued last year, these Measures are not that newsworthy in of themselves but rather as an indication of the prevailing view that the tax administration systems needs cleaning up. Our understanding is that more developments can be expected soon.
Posted by admin on February 3, 2010 under Hwuason News |
In the lead up to Chinese New Year many Chinese companies and businesses take an annual work trip. In Northern China where the winter cold is still biting this usually means going to a hot springs for the weekend. These work weekends give companies an opportunity to collectively reflect upon the achievements of the previous year, set a new agenda for the coming year and to simply relax and play some games.
- Hwuason’s sporting superstars
Last weekend, Hwuason’s annual trip took place at Longmai Hotsprings in Changping County in Beijing’s northern suburbs. Hwuason’s lawyers and administrative staff assembled together at the springs for a weekend of discussion and a bit of fun.
The firm took the opportunity to review the past 12 months, which saw Hwuason grow into the leading tax law firm in China. Despite the growth of the past 12 months, the firms management believes that there is still scope for further growth, particularly in respect of the firm’s international practice.
