Interview with Xiaoli Huang, National Leader for Tax Controversy Services

 

What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?

The government has issued a number of tax refund and tax cut policies and optimized the implementation procedures with the intention of tackling economic decline and stabilizing the macro-economy. These policies will be in place for designated periods and are expected to result in a massive reduction in taxes and fees, potentially reaching US$ 367,898.10 million. by the end of 2022, which includes US$ 228,542.76 million of tax refund. The VAT credit refund is the most significant tax refund policy in 2022. Additionally, there have been tax deferral policies for certain periods of time targeting manufacturing small, medium, and micro enterprises.

What has been the most significant impact of that change?

The implementation of the above policies has eased pressure on enterprise operations to a certain extent, revitalized company cash flow, and stimulated market vitality. Meanwhile, the tax authorities have implemented significant post-period risk control and inspection measures on enterprises that enjoy the above policies, which has resulted in higher requirements for the compliance of enterprise tax treatment.

How do you anticipate that change impacting your work and the market moving forwards?

After the introduction of tax relief policies in China, a large number of taxpayers have applied such policies. Consequently,the tax authorities have strengthened their risk control and review process and even carried out inspections in some circumstances. Taxpayers may need to prepare more detailed documents to mitigate the risk and, due to a lack of experience, taxpayers may need to hire us to deal with tax authorities' inspections, including inspections targeting VAT credit refund beneifts. Therefore, we anticipate a higher requirement for taxpayers’ compliance and an increase in tax disputes in subsequent periods. It may bring more service opportunities for professional service companies and put forward higher requirements for practitioners’ professional skills.

How has this changed the way you offer tax advice?

We have advised taxpayers in connection with meeting compliance obligations. We have advised taxpayers whether to apply for certain beneficial policies, whether the beneficial policies are suitable and which factors should be focused on during the application process. During the process, we have also advised taxpayers in preparing,retaining relevant documentation and assisting in subsequent risk management to deal with possible tax inspections. In addition, unlike tax policies issued in previous years, which were stable and regular in frequency, recent tax policies were issued without regularity and a number of policies may be issued at one time or right after each other. This required us to spend more time on studying new tax policies so as to deliver our analysis and assist taxpayers in the applications in accordance with taxpayers' specific circumstances and decisions.

What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?

The tax collection and levy management of the tax authorities are evolving. China is speeding up the development of information technology and modernizing collection and levy management. “Golden Tax Project Phase-ІV” will utilize the electronic invoice reform as a breakthrough to enhance tax supervision through big data. At the same time, the ever-increasing information transparency suggests that the tax collection and levy management on individual taxpayers are tightening.

What are the potential outcomes that might occur if those changes are implemented?

On one hand, the tax authorities will acquire more information and data on enterprises, which will lead to tax audits at a deeper level and, therefore, may require enterprises to improve their level of tax data support and compliance. On the other hand, it also suggests more severe compliance obligations for high-net-worth individuals.

Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?

The above changes will have a positive effect. The enterprises’ tax compliance awareness is increasing and a higher demand of digitalized enterprise management in general has led to an increasing demand of digitalization and mordenization in tax management for both taxpayers and tax atuhorities. We expect that both of the above factors will increase requests for support from professional service companies, leading to more service opportunities.

Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?

Many countries and regions have already introduced Advance Tax Ruling policies and established a mature implementation and management mechanism. Enterprises in China are also seeking greater certainty in advance. For example, the Nansha District Tax Bureau of Guangzhou, China, has issued a relevant measure in 2020 suggesting that an Advance Tax Ruling policy could be introduced at the national level.

How do you believe those changes would help improve the tax landscape in your market?

Under the current economic trend, taxpayers may consider business merger and restructure. Due to the complexity of tax regulations, at the implementation level, the differences in the understanding of tax policies between taxpayers and tax authorities may lead to subsequent tax-related risks for taxpayers, such as additional tax payment, overdue surcharges and fines, and such tax uncertainty may significantly alter taxpayers' business decisions and hinder business innovation. Thus, taxpayers may require a level of certainty and assistance from tax authorities when making initial business decisions, and we expect enhanced tax certainty and tax policy guidance will encourage business innovation and facilitate investment in the market.

How are issues surrounding the taxation of the digital economy affecting your work?

With the rapid development of new business models, the digital economy has brought new challenges to the tax system as well as the tax collection and levy management. The State Taxation Administration (STA) is actively participating in the “Two-Pillar solution” research and keeping pace with the international progress. Meanwhile, STA is also studying tax collection and levy management at the domestic level. We look forward to new tax regulations and legislations in the future that are expected to bring new business opportunities.

How would you describe the tax authorities’ approach in your region/jurisdiction?

By strengthening the data exchange with other regulatory departments and organizations, the tax authorities have conducted tax collection and levy management more accurately and scientifically through the development and application of big data and are transforming themselves from empirical law enforcement to scientific and accurate law enforcement. In addition, the tax authorities have widely applied data in tax analysis, tax payment services, supervision, and law enforcement etc., to create a more equal tax environment.

 

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