Posted by Jane Peng on April 27, 2010 under Anti-Avoidance, Tax Controversy | 
The new Rules for the Tax Administrative Review (Order of SAT [2010] No. 21) (hereinafter the “New Rules”), issued by the State Administration of Taxation (“SAT”), have superseded the Interim Rules for the Tax Administrative Review (Order of SAT No. 8). One of the aims of the New Rules is, arguably, to increase protection of the legal rights of taxpayers and other interested parties. It is also evidence that one purpose is to ensure supervision of the tax authorities so that they lawfully exercise their authority. The New Rules introduce several major modifications to the tax administrative review system, such as the scope of administrative review, rules on admissible evidence and the method of hearings.
However, probably the most significant change is the introduction of a compromise and conciliation system in accordance with Articles 40 and 50 of the New Rules. Whilst negotiation with the tax authorities in China, both prior to commending litigation and during litigation, is already a common practice there were long standing concerns about the legality of such practices and whether agreements that had been reached were, in fact, enforceable. The New Rules seek to provide a stronger legal basis for such practices.
Compromise Agreements
The New Rules outline the requirements for a binding compromise agreement. It is first noted that the content of a compromise agreement shall not damage the interests of the public and/or individuals. Once a compromise agreement has been approved by the relevant administrative review organ, an applicant is not permitted to apply for review on basis of the same fact and reason. However, apart from this, the New Rules do not specifically detail the legal effect of a compromise agreement. There are still concerns as to the extent to which a compromise agreement can be enforced. It is also not clear whether the applicants can revoke a compromise agreement and reapply for review should new evidence come to light. Finally, the New Rules do not outline that the action that can be taken when one party does not meet their obligations under the compromise agreement.
The new Rules represent a significant attempt by the SAT to bring legitimacy and transparency to the tax administrative review system in China. Whether they achieve such an aim is yet to be seen.
Posted by Sunny on March 18, 2010 under China Tax, Tax Controversy |
On 10th February 2010 the State Administration of Taxation (SAT) issued new Tax Administrative Review Rules (SAT Order [2010] 22) (the “Rules”) providing a comprehensive guideline for tax disputes in China. There are 105 articles in the Rules, which is 53 more articles than was contained in the original. A fundamental component of the new Rules is the introduction of a reconciliation and compromise system. The Rules are operable from 1 April 2010.
Reconciliation and compromise
As introduced by the stakeholder, the added reconciliation and compromise system stipulates the applicable scope and fundamental principle of the reconciliation and compromise. It also designs details of procedures and requirements . The new rules allow the applicant and the respondent to reach a settlement agreement voluntarily and the administrative review shall terminate after permitted by institution of administrative review, however , the applicant shall not apply the administrative review again for the same fact and reason .The institution of administrative review shall conduct the conciliation in accordance with the principle of voluntary.
Other issues
Some of the other more important changes in the Rules include guidance on the admissibility of evidence, a shift from documentary hearings to full public oral hearings, stipulations on which level of local taxation bureaus have jurisdiction for administrative review and a direction that tax authorities of all levels must provide guidance and supervision in respect of tax administrative review.
A translation of the new Rules will be posted on the Hwuason website within the next 7 days.
Posted by Sunny on March 16, 2010 under China Tax |
In mid-February the SAT issued Administrative Measures Concerning the Administrative Norms of Drafting Taxation Documents (SAT Order [2010] No. 20) (the “Measures”). The Measures aim to establish a standardized method for the drafting of official documents by tax authorities at or above the county level. Different from other inner management documents and its predecessor, the new measures not only imposes restrictions on authorities and procedures in respect of drafting of documents but also pays more attention to the protection of taxpayers. This continues the general trend in China to increase taxpayers’ rights. Some of the changes in the Measures are as follows:
- Article 2 of the Measure replaces the term “person subject to taxation administration” to the “taxation administrative counterpart”. The reasoning behind this change is to indicate that the relationship between the tax authorities and taxpayers is not “to manage or to be managed” but is of relative equality.
- The Measures aim to solve conflict in current practices for the drafting of taxation documents. In China, tax authorities at different levels unveil hundreds of fresh policies and documents every year and these official documents are often in conflict. This Measures’ require that revoked documents be specified and for the SAT to clean up all the taxation documents every two years. The SAT is required to release a directory of those documents that have been withdrawn or annulled.
- Article 6 of the Measures clarifies that the taxation bureaus at the county level shall formulate the authority files only whereas the taxation bureaus at the provincial level or above shall give explicit authorization for them. This article will limit the role that taxation bureaus at the county level have in relation to the formulation of official documents.
- Article 14 outlines the rules for the implementation new regulations. The original Administrative Measures specified that as a general rule new regulations shall take effect from the date of issue. The new Measures provide that regulations shall be in effect from 30 days after the date of issue.
Here at Hwuason we have seen a general trend over the past 12 months indicating that the SAT intends to provide greater rights and certainty for tax payers. This is one of the latest signs of this trend.
Posted by Shi Zhiqun on December 31, 2009 under China Tax |
Many readers may have come across the many different types of tax regulations and policies in China – such as Caishui, Guoshuifa, Guoshuian etc. This can all be quite confusing at times so we thought that we would attempt to clarify how the laws, regulations etc interact. We will use the Enterprise Income Tax system as an example.
Basic Law
The taxation of enterprises is governed principally by the Enterprise Income Tax Law which was promulgated by the National People’s Congress (China’s governing parliament). The EITL is what is referred to as a Basic Law. This is the fundamental law underpinning a certain legal area (in this case the income taxation of enterprises). The NPC only meets once a year so Basic Laws can be very difficult to change. It can take up to ten years from an initial draft stage to the promulgation stage. Also, as with any political system, the more decision makes involved in a process the more highly politicised an issue will be. As such, Basic Laws are usually very … basic. They tend to be quite short and vaguely drafted in order to accomodate change at the level of regulations and to obtain a broad consensus.
Implementing Regulations
The next document in respect of enterprise income taxation is the Implementing Regulations of Enterprise Income Tax Law which is issued by the State Council. Now we start to get a bit more substantive. The State Council meets on a regular basis and is a relatively small group (in contrast to the NPC). The Implementing Regulations puts the meat on the bone of the EITL. However, once again the Implementing Regulations are not overly detailed and leave a lot to the imagination (or the tax authorities). Implementing Regulations are basically drafted by the SAT and signed off by the State Council.
Circulars and Measures
There are a number of different circulars and measures that are issued at different levels of the tax administration including the following:
- Guofa - these are circulars issued by the State Council. These are usually very short and confined to a single issue or topic area;
- Caishui – these are notices jointly issued by the SAT and the Ministry of Commerce;
- Guoshuifa (or Measures) – these are issued by the State Administration of Taxation and can be quite detailed. In 2009 the SAT issued Guoshuifa (No 2) a very detailed range of measures on anti-avoidance practices.
- Guoshuihan – these are internal circulars issued by the SAT to the various provincial and local level SATs and local taxation bureaus outlining policy practice in respect of a certain area. In early December 2009 the SAT issued Guoshuihan [698] 2009 which outlined a new practice in respect of the taxation of off-shore equity transactions.
From a theoretical legal perpsective, the regulations higher up the end of the chain will have more force. For example, if a Guoshuihan circular contradicts a Caishui circular, the latter will prevail. However, in practice they are all fairly equal in terms of the need to be obeyed. Whilst Guoshuihan circulars are only internal policies, they effectively reflect the terms of the superior Laws and Regulations themselves, or at least the SAT’s interpretation of those Laws and Regulations.
To make things more confusing, these are just the regulations issued at a national level. Each provincial level SAT and, in fact, each provincial taxation bureau have their own set of regulations and policies.
