Policy will ensure fair environment for investment: analysts
The tax authority in China will issue an important document this month ordering transnational corporations to disclose certain information that will be used to tackle potential tax evasion, according to a media report on Wednesday.
The move won't affect foreign investment in China, but it will help create a fair investing environment, analysts noted.
In late May, the State Administration of Taxation (SAT) will order large multinational companies to disclose such data as the identities of their related parties, country-by-country report form and transfer pricing arrangement, domestic news portal yicai.com reported on Wednesday.
The data will be used to uncover tax evasion, yicai.com said.
An official with the SAT declined to comment on the document before its release, when contacted by the Global Times.
"This document could be released soon but it's hard to tell the exact date," Travis Qiu, a partner specializing in transfer pricing at audit firm EY, told the Global Times on Wednesday.
Transfer pricing is the most important aspect of the document, which will require companies to follow the arm's length principle when conducting business with their affiliates, in a way that other independent companies would have agreed, according to Qiu.
The SAT will also order companies to submit detailed country-by-country report and disclose the identities of related parties even if there were no explicit transactions. That's different from the current practice where such information was required only when transactions were made, Qiu noted.
He said the moves are generally in line with the Base Erosion and Profit Shifting (BEPS) package of the Organization for Economic Co-operation and Development (OECD).
BEPS refers to tax planning methods that take advantage of the gaps and mismatches in tax rules to shift profits to low or no-tax regions, resulting in little or no corporate income tax being paid in some jurisdictions.
BEPS are common practices around the world. According to the OECD, the resulting global corporate income tax losses range from $100 billion to $240 billion annually, or about 4 percent to 10 percent of global corporate income tax.
The BEPS package was approved during the G20 Antalya summit in Turkey last year.
"This circular will not crowd investment out of China, but it may affect the transactional arrangement and the holding structure," Qiu said, noting the move will ensure a fair and transparent environment for investing in China.
