China Tax Newsletter - March / April 2016

Tax Newsletter

Welcome to the latest issue of our Tax Newsletter. In this issue, we have covered a number of developments and cases in the PRC and Hong Kong which could impose legal and tax implications to your business.

In the PRC, an important yet not new topic is that the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) have jointly issued a detailed version of VAT reform guidance, which replaces several previous circulars on the same subject matter. In this newsletter, we have included a summary of the key features as well as the new VAT rates for the industries covered under the VAT reform. As a related topic, the SAT also promulgated the rules to cover the tax registration and invoice issues under the reform.

In addition, MOF, SAT as well as the General Administration of Customs (GAC) are working together to strengthen the control over import taxes imposed on cross-border e-commerce retail. GAC also introduced some new concepts on the import/export declaration for trading of goods.

Finally, China and Indonesia have formally signed the Protocol to the Tax Treaty.

In Hong Kong, the special stamp duty (SSD) measures to combat property speculation remains in place. It is noted that the amount of SSD, Buyer's Stamp Duty (BSD) and Doubled Ad Valorem Stamp Duty (Doubled AVD) collected in early 2016 has decreased, suggesting that the measures may be working.

In addition, under the "Assess First, Audit Later" system, field audit and investigation cases have been consistent in the last 3 years. In a recent tax evasion case, a taxpayer who made false statements in connection with claims for deduction of self-education expenses and approved charitable donations was convicted.

In Board of Review (BOR) D25/14, the facts bring us back to a time when trade restrictions between Taiwan and China did not allow direct trade. In this case, a Hong Kong company took the role of a middleman between a Taiwanese company and a Chinese company. It was undisputed that the Hong Kong company's activities in Hong Kong did not include the entering into and performance of contract. However, its role and transshipment activities in Hong Kong were held to be the effective causes of profits.

In BOR decision D26/14, a taxpayer had unintentionally submitted a tax return with items of total income amount left blank. Although it was decided to be no grounds of appeal, it was held that the Inland Revenue Department (IRD) should provide a written warning to first time offenders requesting him/her to amend the return with a small penalty instead of issuing additional tax assessment at the first instance.

Finally, we have highlighted the new tax network with Latvia and the commencement of operation of the Inland Revenue (Amendment) (No. 3) Ordinance 2015 ("Amendment Ordinance No. 3"), effective from 1 April 2016. We have also summarized the recent views of the Chief Secretary for Administration on the reasons why the implementation of a universal pension scheme, in particular the “regardless of rich or poor” approach, is not an ideal solution to enhance retirement protection for the elderly in Hong Kong. 

We welcome your feedback and any questions you may have about this issue of the Tax Newsletter.

Read the latest issue of our Tax Newsletter