Trends in Chinese Tax Administration Reform in 2024
China’s tax administration reform continued to deepen in 2024, with several key developments aimed at optimizing the business environment, enhancing tax policy certainty, and providing efficient services to taxpayers.
Advance Tax Ruling Mechanism Expands
A notable trend was the gradual promotion of the advance tax ruling mechanism across multiple cities in China. Branches of the State Taxation Administration (STA) in Beijing and Maoming, Guangdong issued measures to allow enterprises to seek written guidance from tax authorities on the application of tax policies to specific complex and significant tax matters expected to occur in the future.
These advance tax ruling policies specify the applicable scope, inapplicable matters, and emphasize active communication between taxpayers and tax authorities. This mechanism offers more clarity and predictability to businesses operating in these regions.
Administrative Measures for Beneficial Owner Information
Another key development was the release of administrative measures requiring business entities to file beneficial owner information with tax authorities after November 1, 2024, with a one-year grace period. This aims to enhance transparency and combat tax avoidance.
Targeted Tax Incentives
China continued to provide targeted tax incentives to support economic development in 2024. The Shenzhen Qianhai Cooperation Zone expanded its Corporate Income Tax (CIT) policies to cover more areas, while the Individual Income Tax (IIT) incentive for Hong Kong residents materialized, providing tax benefits to eligible individuals
Additionally, the 2024 Catalogue for Guiding Industry Restructuring took effect from February 1, 2024, providing tax incentives for the import of equipment and technology related to domestic investment projects listed in the “encouraged” category.
Digitalization of Tax Administration
A key trend was the focus on digitalization of tax administration. The State Taxation Administration emphasized the importance of using big data and technology to enhance tax enforcement, close loopholes, and improve efficiency. This includes plans to fully promote the fourth phase of the Golden Tax System, which centers around digital invoicing (fapiao). The “double random and one open” principle, which involves randomly selecting samples for inspection, randomly timing inspections, and keeping inspection locations open, is being leveraged to strengthen risk management and control in the digital tax administration
Preventive Measures for Tax Evasion
China has implemented several preventive measures to combat tax evasion:
- Risk Prevention Control
The “double random and one open” principle is being leveraged to strengthen risk management and control in the digital tax administration. This involves randomly selecting samples for inspection, randomly timing inspections, and keeping inspection locations open, making it harder for violators to evade inspections.
- “Fake Enterprises” Control
The SAT has been proactive in identifying and addressing the issue of “fake enterprises,” which are entities created solely to evade taxes. These measures include enhanced monitoring of new business registrations and stricter verification processes for company registrations.
- Enhanced Transfer Pricing Monitoring
The SAT has prioritized monitoring cross-border profit levels to prevent multinational enterprises from engaging in transfer pricing schemes. This includes establishing a “globally-integrated” profit level monitoring system for multinational enterprises with a unified statistics standard and risk evaluation system.
- Big Data Analytics
The Jiangsu Provincial Tax Bureau has introduced a big data analytics platform to continuously monitor multinational enterprises’ profit levels. This platform uses historical data and analytics to identify potential tax evasion patterns and take proactive measures to prevent them.
In summary, China’s 2024 tax administration reform prioritized enhancing policy certainty, providing targeted incentives, and deepening digitalization efforts, while also addressing challenges around transparency, inequality, and local-central fiscal balance.
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