The socio-economic conditions and tax practices have taken great changes since Tax Administration Law was amended in 2001. In order to keep up with the latest developments in practice, Legislative Affairs Office of the State Council released Amendment on Tax Administration Law (Draft) (http://www.chinalaw.gov.cn/article/cazjgg/201306/20130600387820.shtml) to seek public opinions in late June.
The Amendment focused on adjustments on certain legal terms to coincide with other laws, and it also strengthened the tax authorities’ power to collect tax information and clarified certain procedural issues. Such amendments were in line with current tax administration demands and they also reflected future trends on tax administration to some extent.
Trend 1 Strengthen on Tax Administration
The amendment expanded the inquiry scope of tax authorities stipulated in the current tax administration law article 17 “the accounts of taxpayer” to “the accounts, transactions, cash flow, etc”. And it also added an article requiring government sectors providing tax information to tax authorities. Such amendment effectively solved the problem of information asymmetry between taxpayers and tax authorities and would play an important role in combating tax violations.
Seen from past experience, many significant special tax adjustment cases with respect to equity transfer that tax authorities dealt with had close links with information concerning shareholder changes provided by relevant business registration authorities. With information channel widening, we predicted that tax authorities would strengthen the tax enforcement and strictly dealing with tax violations. Therefore, Hwuason Lawyers suggest companies note about the tax administration trend and enhance the tax compliance in order to avoid potential tax risks.
Trend 2 Expand the Discretion of Tax Authorities
The amendment revised the range of tax preservation stipulated in the current tax administration law article 38 “tax authorities have grounds for deeming that a taxpayer engaged in production or business operations has evaded taxes” to “tax authorities have grounds for deeming that a taxpayer has possibilities to fail to fulfill tax obligation”. There was no doubt that such revision would result in unlimited discretion of tax authorities in reality, since tax authorities may depend on their own understanding to do such judgments. However, to any act conducted by taxpayer, tax authorities may think that the taxpayer has the possibilities to fail to fulfill tax obligation, and the only differences may lie in their degree. Therefore, tax authorities may abuse this article to advance the time of taxpayers’ liability at their own will, which is definitely unfavorable to the taxpayers.
Meanwhile, it may easily lead to legal uncertainties and inconsistencies, that is, under the same circumstances, some tax authorities think taxpayers have possibilities to fail to fulfill tax obligation, while other tax authorities do not think so.
Trend 3 Possible Monopoly Position of Certified Tax Agents
The amendment revised the current tax administration law article 89 “A taxpayer or withholding agent may appoint a tax agent to handle its tax matters on its behalf” to “A taxpayer or withholding agent has the right to appoint a certified tax agent to handle its tax matters on its behalf”. Since the concept of tax agent may include certified tax agent, lawyer and certified public accountant, such revision actually granted certified tax agent the privilege of rendering tax services. In fact, certified tax agent, lawyer and certified public accountant respectively hold certain portion in tax service market and their services have their own emphasis. However, the amendment only recognized the legal status of certified tax agent, and excluded lawyer and certified public accountant from the tax service market, which may result in the monopoly position of certified tax agent, lower the quality of tax services, and have negative influences on the development of tax service market.
For more information or advice on the above tax issues, please feel free to contact us by Tianyong Liu (firstname.lastname@example.org) or Lingyan Hu (email@example.com). You can visit our website at www.hwuason.com or our tax blog at www.chinataxblog.com.
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