October 2021 / China

October 25 2021

Answers to questions on anti-tax avoidance during Covid-19 period

  1. The epidemic has had a great impact on the production and operation of enterprises and related transactions within the group. In this case, how to carry out transfer pricing investigation by tax authorities?

STA: The impact of the epidemic on enterprises in different industries varies greatly, bringing great impact to some enterprises in different industries and new development opportunities to others. When conducting transfer pricing investigations, tax authorities will follow the principle of independent transactions and, on this basis, consider the impact of the epidemic on related transactions of enterprises, on a case-by-case basis.

  1. How should tax authorities consider losses caused by the epidemic in their transfer pricing investigations?

STA: Tax authorities will take into account the impact of the epidemic on enterprises in the transfer pricing investigation, taking into account such factors as enterprise functional risk, related party transaction characteristics, industry characteristics and comparable enterprise conditions. For enterprises' additional expenditures due to epidemic prevention and control or increased operating expenses due to the impact of the epidemic, tax authorities will adjust the differences as appropriate in the comparability analysis based on full consideration of the distribution of related costs and expenses among independent third parties. It is suggested that enterprises clearly divide and quantify relevant costs and expenses, and keep relevant evidence for future reference.

  1. What should an enterprise pay attention to when preparing local documents for the same period if the profit level in 2020 changes significantly due to the epidemic?

STA: According to the state administration of taxation on perfecting the same period and related personal data management related matters of announcement no. 42 (2016) the first item (4) of article 14 of the relevant provisions of enterprise in local document preparation, shall specify outbreak the specific impact of related party transactions, the value chain, the comparable analysis, comparable object data for the same year, region, industry, product and functional risks can be focused to reflect the impact of the epidemic on industry profit levels.

  1. Does the government's assistance policy affecting the price adjustment of related party transactions?

STA: During the epidemic, the Chinese government has introduced a series of assistance policies in areas such as rent, taxes and financing. The influence of government aid policies on transfer pricing arrangements may be mainly reflected in comparability analysis. If enterprises believe that government assistance has an impact on transfer pricing arrangements, they should provide relevant information in their transfer pricing documentation to support transfer pricing analysis. Tax authorities will follow the principle of independent transactions to identify comparable factors and ensure the fairness and consistency of comparable analysis results.

  1. How to implement signed reservation pricing arrangements if they are affected by COVID-19?

STA: If it is true that the epidemic has affected the implementation of the reservation pricing arrangement, the enterprise may report to the competent tax authority in written form, explaining in detail the impact of the epidemic on the implementation of the reservation pricing arrangement, and attach relevant materials.

Competent tax authorities should analyze and assess the extent to which material changes brought about by the epidemic will affect reservation pricing arrangements. For unilateral reservation pricing arrangement, negotiate with the enterprise to revise or terminate the reservation pricing arrangement; The arrangement of double-sided (multi-sided) reservation pricing shall be reported to the State Administration of Taxation for coordination at different levels and shall be settled by the State Administration of Taxation and the competent tax authorities of the other contracting party through negotiation.

October 25 2021

Seven types of Documents to be retained for future reference to enjoy the additional deduction of R&D fee

To enjoy the advantage of additional deduction for R&D expenses, seven types of data need to be retained for future reference. According to the Notice on Further Implementing the Policy of Additional Deduction for R&D Expenses, enterprises need to prepare an auxiliary account of R&D expenses, fill in the Preferential Schedule for Additional Deduction for R&D Expenses (A107012), and keep it together with other materials for future reference. Other information includes:

(a) proposal for the independent, entrusted or cooperative research and development project, and the resolution passed by the power organ of the enterprise pertaining to setting up the independent, entrusted or cooperative research and development project;

(b) composition of the organization or project team for the independent, entrusted or cooperative research and development project, as well as name list of the research and development personnel;

(c) contract for the entrusted or cooperative research and development project, which is registered with the science and technology administrative authorities;

(d) explanation on distribution of expense of staff undertaking research and development activities and instruments, as well as equipment and intangible assets used for research and development activities (including records on work and usage);

(e) balance sheet for research and development expenses of research and development projects, breakdown of distribution of expenses of research and development projects, the actual benefit-sharing ratio etc.;

(f) subsidiary ledger for research and development expenditure;

(g) where the enterprise has obtained an expert opinion issued by the science and technology administrative authorities of prefectural level and above (inclusive), the expert opinion shall be retained for future inspection; and

(h) any other materials stipulated by the provincial tax authorities.

October 25 2021

Coal-fired Power Companies and Heat Supply Enterprises Can Defer Tax Payment for the Fourth Quarter

In order to ensure steady energy and power supply during the winter and next spring, the State Taxation Administration released on October 21, 2021 the Circular about Tax Relief Measures to Support Coal-fired Power Companies.   The circular stated that coal-fired power companies and heat supply enterprises can postpone payment of their tax bills in the fourth quarters. Tax administrations will speed up processing of tax rebate applications, and accelerate implementation of targeted and universal preferential tax & fee policies. Local tax administrations should conduct thorough inspections about business and tax conditions at local power companies and heat supply enterprises, and provide instructions to them about preferential tax & fee policies.
October 25 2021

Fintech companies step up financial support to SMEs

Chinese fintech companies are ramping up efforts to provide financial support for innovative small and medium-sized enterprises in a move to fuel the country's push in achieving innovation-driven economic growth.

360 DigiTech, the fintech arm of 360 Security Group, signed a cooperative agreement with the financial unit of business software specialist Kingdee on Thursday. The two fintech companies have vowed to strengthen cooperation on technology, capital, channel and customer base to help SMEs ease their financing difficulties.

"To create new development opportunities for the real economy, China needs to rely on 'little giant companies'. The country's support for such companies is increasing. Helping those companies grow through financial technology is a national strategy. It is also the major battlefield for us," Wu Haisheng, chief executive officer of 360 DigiTech, said.

The Ministry of Industry and Information Technology unveiled in July a list of 2,930 "little giant companies" – leading SMEs that specialize in niche sectors, command a high market share, boast strong innovative capacity and core technologies, adding the total number to 4,762 as of now. The country aims to cultivate 10,000 such companies by 2025.

Wang Hong, president of Kingdee financial unit, said industrial connectivity is important for the development of SMEs, but given the complexity of industrial value chain, digitalized financial services targeting businesses have been lagging behind compared to those targeting individuals in terms of the level of intelligence and convenience.

"It is the 'blue ocean market' for fintech companies," he said.

Source: China Daily

October 25 2021

China’s GDP expands 9.8 pct in first three quarters

China's economy continued stable recovery in the first three quarters of this year with major indicators staying within a reasonable range, official data showed Monday.

The country's gross domestic product (GDP) expanded 9.8 percent year on year in the first three quarters, putting the average growth for the period in the past two years at 5.2 percent, data from the National Bureau of Statistics (NBS) showed.

In the third quarter (Q3), the country's GDP grew 4.9 percent year on year, slower than the growth of 18.3 percent in Q1 and 7.9 percent in Q2.

"The Chinese economy has maintained the recovery momentum in the first three quarters with progress in structural adjustment and high quality development," said NBS spokesperson Fu Linghui.

Consumption contributed the lion's share to the economic growth in Jan.-Sept., while net exports contributed 19.5 percent to the GDP increase.

Major economic indicators showed continued improvements across the board, with retail sales of consumer goods jumping 16.4 percent year on year in the first three quarters this year.

China's value-added industrial output went up 11.8 percent year on year in the first three quarters, while fixed-asset investment went up 7.3 percent year on year during the period.

The country's surveyed urban unemployment rate stood at 4.9 percent in September, 0.5 percentage points lower than the same period last year, NBS data showed.

During the Jan.-Sept. period, China added 10.45 million new urban jobs in the first three quarters, achieving 95 percent of the target for the whole year.

Recognizing the progress, Fu cautioned against rising uncertainties in the international environment and uneven recovery in the domestic economy, adding that the country will take various measures to keep the economy running within a reasonable range.

October 25 2021

Beijing Unveils 20 Measures to Promote High Quality Development of Digital Trade

Five departments in Beijing, including the Bureau of Commerce and the Bureau of Finance, recently released the Measures for Promoting High Quality Development of Digital Trade in Beijing. The document proposes to adopt such measures as building digital trade service platforms, promoting cross-border data flow, and consolidating the industrial foundation of data trade. In terms of promoting cross-border data flow, the document proposes to draft data classification standards and important data catalogue in the key fields of intelligent connected vehicles and information technology, seek national support and municipal participation in the security evaluation of cross-border data transmission, and establish and optimize the regulatory mechanism on security evaluation of cross-border data transmission. Source: Beijing Municipal Commerce Bureau
October 25 2021

Power crunch impact on Chinese economy controllable: spokesperson

China's power shortage is only temporary and its impact on the economy is under control, an official said Monday.

Rising international energy prices, as well as tight domestic supplies in coal and electricity, partly led to power outages in some regions that affected normal production orders, said Fu Linghui, a spokesperson with the National Bureau of Statistics (NBS).

The country has rolled out a series of measures to ensure power supply and keep electricity prices stable. As these measures gradually take effect, the power crunch would be eased and its impact on economic operation will be alleviated, Fu said.

NBS data showed that the country's power generation accelerated in September, climbing 4.9 percent year on year last month compared with a year earlier, 4.7 percentage points faster than the growth rate in August.

Monday's data also showed that the Chinese economy maintained stable growth in the first three quarters, with gross domestic product expanding 9.8 percent year on year during the period.

Source: Xinhuanet