China to join global clampdown on tax evasion

Want China Times, Staff Reporter 2013-08-26

A tax office in China. (Photo/CNS)

The Organization for Economic Cooperation and Development (OECD) recently announced that China will sign the "Convention on Mutual Administrative Assistance in Tax Matters" on Aug. 27, thereby joining the global campaign to clamp down on tax evasion, reports Shanghai's First Financial Daily.

As a signatory of the convention, which now has over 50 members including the G20, China will exchange tax affairs information with other signatories, gaining free access to related information from other nations.

With ever greater and wider exchanges of personnel, capital, commodities, and services among various countries, taxpayers have been allowed greater leeway for arranging taxation affairs, facilitating tax evasion, aided by financial privacy accorded by banking laws of various countries, the paper said.

The aforementioned convention was drafted by the OECD and the European Commission in 1987, aiming to help member nations clamp down on tax evasion, without jeopardizing the basic right of taxpayers. The convention was originally applied to only OECD and EC members but the restriction was lifted in 2010, following its revision.

Cui Xiaojin, professor of law at Wuhan University in central China's Hubei province, said that participation in the convention will help China improve its taxation management and spur the nation to improve its taxation system.

In the wake of the global financial tsunami, cross-border tax evasion has become a global issue and will be put on the agenda of the next G20 summit meeting, to be held in St. Petersburg in September.

The issue involves multinational corporations taking advantage of tax havens, often resorting to cross-border tax evasion by transferring profits to low-tax countries. Multinationals caught committing cross-border tax evasion include Google, Amazon, Apple, and Starbucks, the paper said.

According to figures released by the State Administration of Taxation in late July, anti-tax evasion efforts by the Chinese government generated an additional income of 34.6 billion yuan (US$5.7 billion)last year, 27.9 times the amount in 2008.

An official at the State Administration of Taxation reported that many Chinese businesses transfer their profits abroad via payment of service fees and licensing/franchise fees. He said that it differs from their previous method of "high purchasing cost and low sales price."

The official added that many high-ranking executives utilize one-off maneuvers to send funds abroad, transferring money to companies registered in low-tax countries, such as Singapore and the Virgin Islands and change their residential status there. The new practices have complicated the job of China's taxation authority in clamping down on tax evasion in the international arena.