November 2021 / China

Further green investment is in sight for China as the country gradually shifts toward a more institutionalized phase of decarbonization, according to a research report by Morgan Stanley.

"We expect policymakers to step up support for green investments from 2022 -- such as renewables, smart grid, power storage equipment, and manufacturing equipment upgrades," said Robin Xing, Morgan Stanley's chief China economist, in the co-authored report.

The green push is expected to inject new impetus into the Chinese economy. The investment bank forecast a recovery in infrastructure driven by green investment, saying it expects infrastructure investment growth to rebound to 4 percent next year.

Manufacturing investment demand is also predicted to rise as manufacturers upgrade their equipment to improve energy efficiency, according to the report.

The projections came amid China's continuous efforts to decarbonize to fight for blue skies and mitigate the impact of climate change.

China in October unveiled an overarching guideline to achieve its carbon peak and carbon neutrality goals, as well as an action plan to peak carbon dioxide emissions before 2030. The guideline and action plan constitute the top-level policy design for decarbonization, and specify targets and measures for the coming decades.

The People's Bank of China, the country's central bank, also rolled out a new lending tool for carbon reduction earlier this month, which aims to provide low-cost loans for financial institutions so as to strengthen financial support for the reduction of carbon emissions.

The high-level carbon peak guidance has called for the leveraging of a combination of tax policies, green financing and carbon pricing to foster development in green industries, the report noted.

Further policy support for green industries is expected next year in tax and fee cuts and the wider allocation of local government special bond quotas for green investment, it said.

Source: XINHUANET

China will inject more efforts in the intellectual property rights (IPR) sector to better serve the growth of new fields and new business forms during the 14th Five-Year Plan period (2021-2025), said the IPR authorities.

According to the plan, the National Intellectual Property Administration (NIPA) will carry out in-depth study and practice in the Internet, big data, artificial intelligence (AI) and other new fields and new business forms.

China will put diverse efforts on patent examination, data IPR protection, Internet-related IPR protection and IPR international cooperation in the 14th Five-Year Plan period.

The NIPA will give full play to the bidirectional promotion function of patent examination in promoting innovation and application. It will improve the examination rules in the emerging fields to boost breakthroughs in core technologies and their industrial application.

It will promote the implementation of the data IPR protection project, push forward the legislative research and establish rules in the sector, targeting to effectively protect and use data to ensure personal privacy and national security.

The Chinese IPR authorities will also strengthen the IPR protection in the Internet field and facilitate the sector's online and offline integrated development to meet the new challenges from the information era.

According to the NIPA, China will also promote international IPR cooperation in new fields and business forms, as well as international rulemaking in big data, AI and other emerging new fields.

Source: XINHUANET

Four authorities led by the Ministry of Industry and Information Technology and the People's Bank of China have jointly released the Guiding Opinions on Strengthening the Industry-Finance Cooperation to Promote Green Industrial Development, requiring establishing and improving the standard system for carbon accounting and green finance, improving the information sharing mechanism for green industrial development, and increasing the support for green financing.

In terms of innovative green financial products and services, the document supports testing of real estate investment trusts in the field of infrastructure (infrastructure REITs) in green and low-carbon parks in a prudent and steadily manner. It encourages financial institutions to develop climate-friendly financial products, supporting the Guangzhou Futures Exchange to build a carbon futures market for the standardized development of carbon financial services.

The State Taxation Administration and the Ministry of Finance jointly released on October 29, 2021 the Announcement on Matters concerning Deferred Payment of Some Fourth Quarter Taxes by Micro, Small and Medium-sized Firms in Manufacturing, to be implemented from November 1, 2021.

According to the document, the said enterprises may defer payment of part of their taxes and fees for the fourth quarter of 2021, including enterprise income tax, personal income tax (excluding withholding), domestic value-added tax, domestic consumption tax and additional urban construction tax, education fee and local education surcharge. Specifically, a medium-sized manufacturing enterprise, which is defined as having annual sales between 20 million yuan and 400 million yuan, can defer payment of 50% of all its taxes and fees, while a micro or small enterprise, which is defined as having annual sales of below 20 million yuan, can defer payment of all its taxes and fees.

For the purpose of this Announcement, the annual sales of micro, small and medium-sized manufacturing enterprises shall be determined according to the following methods:

For enterprises that have been established for one year or more by September 30, 2021, the annual sales shall be determined based on the sales for the period from October 2020 to September 2021;

For enterprises that have been established for less than one year by September 30, 2021, the annual sales shall be determined based on the sales for the period until September 30, 2021/actual months of operation × 12 months' sales;

For enterprises established on or after October 1, 2021, the annual sales shall be determined based on the sales for the first filing period/actual months of operation × 12 months' sales.

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.

2. 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.

3. 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.

4. 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.

5. 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.

The Ministry of Finance, the State Taxation Administration, the National Development and Reform Commission and the China Securities Regulatory Commission have jointly released the Circular on Piloting Corporate Income Tax Policy on Corporate Venture Capital Enterprises in Specific Area of Shanghai Pudong New Area, with retroactively effect from January 1, 2021.

According to the circular, for a corporate venture capital enterprise in specific area of Shanghai Pudong New Area, if its income from transfer of shares held for over three years represents more than 50% of its total income from the annual share transfer, its corporate income tax for the current year shall be levied by halving the shareholding of individual shareholders at the end of the year; and If its income from transfer of shares held for more than five years represents more than 50% of its total annual income from the annual share transfer, its corporate income tax for the current year shall be exempted by the shareholding of individual shareholders at the end of the year. It also specifies that individual shareholders shall pay personal income tax for their dividends derived from a corporate venture capital enterprise.

The State Taxation Administration recently released the Announcement of the State Taxation Administration on the Evaluation and Repair of Tax-pay Credit (STA Announcement (2021) No. 31), to be implemented from January 1, 2022.

According to the document, there are five circumstances under which a taxpayer with serious dishonest behavior or undergoing bankrupt reorganization may apply with the competent tax authorities for the repair of its tax-pay credit after it corrected the dishonest behavior, performed the tax legal liability, is waived from the release of its major tax violating information, and recorded no dishonest tax-pay behavior for six or 12 months. After completing the repair, the taxpayer would not be subject to the restriction of being rated as D for two years if its rating is no longer D, and it would apply the corresponding tax policies and management services based on the repaired tax credit, with the previous policies and services not subject to retroactive adjustment.