China ‘to step up supervision of multi-nationals to combat tax avoidance’

Out-Law News | 04 Dec 2014 | 10:33 am | 1 min. read

Chinese tax authorities have pledged to increase supervision of multi-national companies in a campaign to crack down on tax avoidance.

Chinese tax authorities have pledged to increase supervision of multi-national companies in a campaign to crack down on tax avoidance.

The deputy director of the state taxation administration Zhang Zhiyong told the state-run Xinhua News Agency that China “will comprehensively monitor the profit levels of foreign companies to make sure there is no base erosion and profit shifting (BEPS)”.

Zhang said China will coordinate efforts with other countries to “clamp down on BEPS plotting and cross-border tax avoidance”.

Xinhua said China “is the world's largest destination for foreign direct investment and faces the challenge of varied tax avoidance techniques”. “A company may erode a country's tax base by using a number of schemes to shift profits across borders, taking advantage of tax rates that are lower than in the country where they earn the profits,” Xinhua said.

Last month, Chinese president Xi Jinping joined leaders of the G20 group of nations in pledging to step up efforts to stop tax avoidance, including measures to modernise international tax rules, prevent cross-border tax evasion, and exchange information among member countries and with other countries.

In 2013, China signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The Convention was developed jointly by the Organisation for Economic Co-operation and Development (OECD) and the Council of Europe in 1988.

In 2009, the Convention was updated to bring it into line with international standards on the exchange of information for tax purposes, and to open it for signature to countries that were not members of the OECD or the Council of Europe.

The amended convention (17-page / 453 KB PDF) is intended to facilitate international co-operation in relation to the application of national tax laws, while still respecting the fundamental rights of taxpayers. It allows for all possible forms of administrative co-operation between states, ranging from the automatic exchange of information to the recovery of foreign tax claims.