August 2021 / China

August 26 2021

China to roll out measures to stabilize manufacturing investment

China will adopt multiple measures to stabilize manufacturing investment, the country's top economic planner said Tuesday.

The country will boost green investment by encouraging investment in technological upgrading and stepping up policy support for the traditional manufacturing industry to reduce carbon emissions, said Meng Wei, spokesperson for the National Development and Reform Commission.

The country will also support investment in advanced manufacturing and improving weak links in the industrial and supply chain, Meng added.

Comprehensive measures will be taken to ease the upward pressure on commodity prices and strengthen investment incentives for middle and downstream manufacturing enterprises while implementing various cost reduction policies, the spokesperson said.

China's fixed-asset investment amounted to 30.25 trillion yuan (about 4.67 trillion U.S. dollars), up 10.3 percent year on year in the first seven months of this year, data from the National Bureau of Statistics showed.

Specifically, investment in manufacturing gained 17.3 percent year on year during the period, the data showed.

Source: Xinhuanet

August 26 2021

China spurs digital economy as new driver of growth

Putting on a helmet and sitting in front of several big screens, you are able to experience the exciting moment of a spacecraft launch. This is one of the highlights of the 2021 Global Digital Economy Conference that concluded in Beijing Tuesday.

During the two-day event that opened on Monday, cutting-edge technologies featuring data-driven innovation were displayed while participants focused on discussions concerning the digital economy as a new driver of China's economic growth despite the COVID-19 pandemic.

China's digital economy kept a high growth rate of 9.7 percent in 2020 amid the pandemic and global economic downturn, according to a white paper released by the China Academy of Information and Communications Technology (CAICT).

The country's digital economy scale hit 39.2 trillion yuan (about 6.1 trillion U.S. dollars) last year, accounting for 38.6 percent of the GDP.

"As people are more connected than ever due to the increasingly diversified communication means, we have all benefited from the progress of digitalization, especially during the hardest time of the pandemic," said Guido Giacconi, vice-president of the European Union Chamber of Commerce in China.

The digital economy has become a key to achieving economic recovery and promoting sustainable development with the global economy, which is still in a fragile state of recovery, said Zhuang Rongwen, director of the Cyberspace Administration of China, at the opening.

The digital economy has displayed strong resilience in the face of the pandemic, as it gives a strong boost to a number of new business models such as online shopping and education, telemedicine and artificial intelligence, said Cai Fang, an expert with the Chinese Academy of Social Sciences.

China has built the world's largest optical fiber and 4G and 5G mobile broadband networks, with the number of 5G terminal connections exceeding 365 million and 5G application scenarios becoming increasingly rich, said Xiao Yaqing, minister of industry and information technology.

With its digital economy ranking second in the world, China has highlighted the digital economy development in its 14th Five-Year Plan (2021-2025) to build a digital China.

Chinese companies will also be encouraged to tap opportunities in the overseas digital market in the following decade, said Lei Jun, chairman of Xiaomi Corporation, a Chinese smartphone manufacturer.

According to a guideline jointly released by Chinese government departments on July 23, more efforts will be made to enable domestic digital economy enterprises to accelerate their deployment of overseas research and development centers and product design centers and strengthen cooperation with overseas technology companies in fields such as big data, 5G and artificial intelligence.

The capital city Beijing has also introduced an action plan Monday on accelerating the process of building itself into a worldwide pioneer in digital economic development.

As noted in the plan, the added value of Beijing's digital economy is expected to account for about 50 percent of its GDP by 2025. Last year, the added value of the city's digital economy has exceeded 1.44 trillion yuan, accounting for about 40 percent of its total economic volume.

The World Trade Organization predicts that digital technologies will promote an annual growth of the global trade volume by around 2 percentage points by 2030, and the proportion of global service trade will be increased from 21 percent in 2016 to 25 percent by then.

"In face of the challenges such as sluggish economic growth and aging society, the digital economy will enable an inclusive high-quality development that enables more elderly people to overcome the digital divide," said Cai.

  Source: Xinhuanet
August 26 2021

Shanghai Unveils Five-year Development Plan to Become International Financial Center

Shanghai municipal government released on August 24, 2021 the Development Plan of Shanghai International Financial Center in the 14th Five-year Plan Period, which contains 44 policy measures.

The plan proposed to enhance business climate for financial services and create a sound financial ecosystem. Financial lease firms and commercial factoring companies are encouraged to be connected to the central bank's credit reference system; the city will support Dishui Lake to build a financial bay, Lingang New Area to play a helpful role for integrating onshore and offshore financial services, and Hongqiao to optimize trade financing services. The plan also proposed to reinforce financial support to key sectors like electronic information, life science, automobile, high-end equipment, and new materials.

Source: Shanghai Municipal People's Government

August 26 2021

Adoption of Simple Procedures for Unilateral Advance Pricing Arrangement

On 30 July 2021, the State Taxation Administration (STA) announced on the Matters Regarding Application of the Simplified Procedures for Unilateral Advance Pricing Arrangements (State Taxation Administration Announcement [2021] No. 24, hereafter “No.24”). Relying on the advance pricing arrangement (APA) framework set out in the Announcement of the State Taxation Administration on Issues to Improve Administration of Advance Pricing Arrangements (State Taxation Administration Announcement [2016] No. 64, hereafter “No.64”), the STA has further simplified the procedures for unilateral APAs, valid from 01 September 2021.

Highlights of No. 24-Simplify the Procedures and Set a Time Limit

No. 64 regulates that the APA process consists of the following six phases: (i) pre-filing meeting, (ii) intention for an APA, iii) analyses and evaluation, (iv) formal filing, (v) negotiations and signing, and (vi) monitor and execution (collectively referred as "general procedures"). The simplified procedures contain three phases, namely (i) evaluation of application, (ii) negotiation and signing, and (iii) monitor and execution. The pre-filing meeting and other phases are exempted.

The simplified procedures set clear processing time limits for tax authorities on the acceptance of APA applications, and the negotiation and signing. Tax authorities must send a Notice on Tax Matters to the submitting enterprise within 90 days of receiving the APA application to inform the enterprise of whether or not the application has been accepted. The in-charge tax authorities must complete the negotiation within six months of issuing the Notice of Tax Matters to the enterprise accepting the application. During the negotiation, any time spent by the enterprise on preparation and submission of additional information required by the tax authorities is not included in the six month period. As such, if the related documents are fully-prepared in advance and submitted by the enterprise in time, a unilateral APA application could be concluded within six to nine months under the simplified procedures[1]. Unilateral advance pricing arrangements shall apply to related party transactions in the period of three to five years from the tax year following the date of service of the "Notice on Tax Matter" on the enterprise by the tax authorities in charge for acceptance of application.

The left column of the following table shows the two applicable conditions, both of which must be met for using the simplified procedures. The right column of the table also shows the circumstances under which the tax authorities may reject an application and when the simplified procedures are temporarily not applicable.

Table: Application Conditions and Rejection Circumstances of the Simplified Procedures for Unilateral APAs

Observations and Recommendations

APAs are arrangements reached between enterprises and tax authorities, or between two tax authorities, with respect to the pricing principles and calculation methods for related-party transactions. It is an important tool for enterprises to obtain transfer pricing and tax certainty for cross-border business operations, and it plays an important role in reducing multinational enterprises' transfer pricing compliance costs and in promoting enterprises' cross-border investments and operations. No. 24 announces simplified procedures for unilateral APAs, improving the efficiency of APA negotiation and signing by simplifying the phases of the application and specifying time limits.

Based on our practical experience, we consider that enterprises should focus on the following aspects:

  • Time limits – This is the first time that APA regulations have specified timeline requirements for tax authorities, where decisions on whether or not to accept the APA application must be made within 90 days and negotiation and signing must be completed within six months. This will help enterprises and tax authorities complete the entire unilateral APA negotiation and signing process within a shorter period. We believe that such time limits requirement may reduce enterprises' concerns on the relatively time-consuming process of APA negotiation and signing.
  • Applicable conditions — When evaluating whether an enterprise meets the applicable conditions for the simplified procedures, the enterprise may proactively plan to meet the requirements. For example, an enterprise that is exempt from preparing the contemptuous transfer pricing documentation may consider obtaining the application by preparing and submitting the contemporaneous transfer pricing documentation for the latest three tax years to tax authorities.
  • Applicable to unilateral APAs — While there are advantages, the simplified procedures do not change the effect of unilateral APAs. If both parties in the cross-border related-party transaction want to obtain tax certainty and reduce double taxation risks more effectively, we recommend applying for bilateral APAs in accordance with the general procedures under No. 64.

Before, STA shall involve in each case of  Unilateral Advance Pricing Arrangement, which objectively makes the number of arrangements signed can not meet the actual needs of enterprises. With the formally establishment of the Simple Procedures for Unilateral Advance Pricing Arrangement, STA delegates the executive power to competent tax authorities of enterprises, which can improve the ability to process applications. Thus, it can help enterprises effectively avoid or eliminate double taxation and achieve CIT certainty in transfer pricing arrangements.

We recommend that taxpayers with cross-border related-party transactions should actively understand the simplified procedures for unilateral APAs, one of the most critical measures of improving the business environment in the field of taxation, and should communicate and discuss internally. Enterprises may leverage this new policy to gain tax certainty in a more time-efficient and cost-effective way.

[1] The time to completion is expected to be significantly shorter under the new regulations. According to the 2019 China Advance Pricing Arrangement Annual Report published in October 2020, the STA signed 101 unilateral APAs between 1 January 2015 and 31 December 2019, most of which were completed within 2 years, with 52.48% completed within 1 year, 36.63% within 1 to 2 years, and 10.89% over 2 years.

August 26 2021

Notice on Further Improving the Simplified Deregistration to Facilitate the Market Exit of Micro, Small and Medium-sized Enterprises

The State Administration for Market Regulation and the State Taxation Administration issued a joint circular on August 3, 2021 to clarify matters related to simplified deregistration of enterprises, so that small, medium-sized and micro firms can exit the market more easily.

According to the circular, the scope of simplified deregistration will be expanded to companies that have no creditor's rights or debts such as outstanding expenses for settlement, employee wages, social insurance premiums, statutory compensation, taxes (late fees or fines) payable, etc. All the investors shall make a written commitment to assume legal liability for the authenticity of the above situation. Through information sharing, tax authorities shall verify the relevant tax-related information under the prescribed procedures and requirements. Tax authorities will raise no objection if the taxpayer is shown to fall under any of the following circumstances upon the inquiry system:

  • it is a taxpayer that has never handled tax-related matters;
  • it is a taxpayer that has handled tax-related matters but has never received or used invoices (including invoices issued on a commission basis), has no tax in arrears or has no other pending matters;
  • it is a taxpayer that has completed tax clearance formalities, such as the handing in of invoices and the settlement of tax payable, at the time of inquiry.