Tizhong Liao has emerged as the voice and face of Beijing's
fight against tax evasion. This is only Liao's second year in
his role as deputy general of the International Taxation
Department at China's State Administration of Taxation (SAT),
second appearance in ITR's Global Tax 50.
|Tizhong Liao was
also in the Global Tax 50
Liao was promoted to his current role as deputy general in
2013, having served in the international tax department since
2006. He has wasted no time in introducing reforms and acting
as an international representative in the development of trade
treaties and BEPS best practices, travelling around the world
to represent China.
In a meeting in Beijing in September, he condemned
profit-shifters and highlighted
15 areas of unacceptable tax practices. In an article in
the People's Daily newspaper, he said that
profit-shifters robbed the Chinese people of money that could
be re-apportioned for social spending or investing in ending
China's air pollution problem. He re-pledged Beijing's
commitment to making the system more sophisticated so that
funds from tax collection will be appropriately allocated. In
Liao finalised negotiations for a double tax treaty with
For Liao, it appears to be only the beginning of a promising
career at an exciting time in China's development.
International Tax Review: How has China's SAT
changed since you joined in 1996?
Tizhong Liao: There has been a great change
and evolution in the past decade. When I joined the State
Administration there was no international tax department. At
that time it was called the foreign tax affairs department.
China had a separate law for foreign direct investment (FDI)
into China which was called 'Enterprise Income Tax Law for
Foreign Investment Enterprises and Foreign Enterprises'. Before
2008, China had two laws in juxtaposition, one for FDI and the
other for domestic investment which actually discriminated
against domestic enterprises because they were subject to
higher income tax than foreign investment.
In 2008, the two laws were unified as one which we now call
'The Enterprise Income Tax Law of the People's Republic of
China'. In that year, throughout China, international tax
divisions were established across different provinces. This was
a watershed year for China's international taxation –
laws for FDI into China and investment outbound were no longer
in juxtaposition, because the laws were unified. A fair playing
field called for unified, coherent principles and rules for tax
administration. For international taxation, we focused on the
transactions that go across borders instead of focusing on
specific enterprises as we did before 2008.
This year was another milestone year for China's
international taxation for two reasons: first, for the first
time in Chinese history, the chairman of the country talked
about international taxation in the most important political
arena, the G20. Secondly, from this year, China will be a net
capital-exporting country. Also in this year for the first
time, direct investment from China to the US exceeds investment
from the US to China. This drives us to reconsider
international tax policy so that we can formulate a policy that
strikes the balance for both inbound and outbound investment.
This puts me in a very challenging situation and in a very
important period of time.
My work is not only important for tax matters, but also very
important for international economic cooperation. The tax
policy formulation by my team has an impact on China's economy
and at the same time influences the landscape of international
economic cooperation with other countries. I have to work
day-and-night to stand up to the challenges and to meet the
needs of fast social and economic development.
ITR: How is China's tax policy dealing with the
shift in focus from primarily multinationals entering into
China to Chinese businesses expanding abroad?
TL: I believe that both domestic
enterprises and multinationals doing business in China are
aware of the quick development of international tax rules
because we do frequent training for them and we also publish
what we're doing on our website. We also publish articles in
the newspaper so they are aware of the evolution. But I should
say, and you can help me convey this message that, whatever
happens in these turbulent years, China still wants to maintain
a tax-friendly environment for international economic
China is still a transitional economy and we definitely
don't want to smother economic cooperation with the world just
because of tax reasons. We improve our international tax rules
to raise certainty. We bring risk down by signing tax treaties
with other countries.
Minister Wang Jun instructed us to reform and to improve
taxpayer services so as to make it easier for international
investors to comply. We try to alleviate the pains brought
international efforts to combat tax avoidance.
ITR: Beijing has made it clear that multinationals
will no longer get away with tax evasion – how is the
SAT developing its own internal strength to combat tax
TL: First we are introducing information
technology to monitor the profit range development of companies
which have cross-border transactions. There is an information
system that is being developed that will be deployed probably
in the beginning of next year. Of course it will have to go
through a period of trial running to be improved. That system,
for the first time in history, will serve as a tool to monitor
or supervise the development of the profit range of MNCs so
they will not shift profit away. The second thing is to deploy
more resources to international taxation. Our leaders agreed to
hire more employees for international taxation. I don't know
how many, but there is hope in having more human resources.
ITR: China's goal is modernisation of the tax
system – how will this be accomplished?
TL: There are
many jobs to be done. There was a speech delivered by
Mr. Wang Jun, Minister of Taxation, at the beginning of
this year on the modernisation drive. He mentioned that we need
a sophisticated policy system, the tax administration itself
should be modern, the information and tech systems supporting
this should be modern and sophisticated, the organisational
structure needs to be developed, and so on. These have to be
Also according to our tax reform agenda, we have eight
missions to be accomplished: 1) business tax to VAT
transformation; 2) environment related taxes; 3) natural
resource related taxes; 4) excise tax; 5) property tax; 6)
individual income tax; 7) tax incentives streamlining; and 8)
redrafting of the law on tax collection and administration.
ITR: China has played a crucial role in
representing developing countries on tax reforms in major
meetings of the OECD and G20 – why is it important
that China speaks up in this regard?
TL: This has to do with the core value of
traditional Chinese culture. The Chinese people value fairness.
Without fairness any system is not sustainable. We believe that
whether it's a developed, developing or even underdeveloped
country, opportunities should be equal. Rules should facilitate
fairness. The international tax system should support three
paradigms: revenue, sovereignty, and fairness. Of course
revenue is important, cooperation across states is important.
Most importantly, rules should be fair, at least relatively
ITR: Which specific area of international tax
legislation is unfair to developing countries?
TL: The current international tax system
was established after the First World War in the 1920s.
According to the existing rule, if a capital exporting country
has business in a host country, the host country cannot tax the
business company unless it constitutes a PE in the host
country. The source country, while welcoming in capital to
boost economic development, doesn't have enough financing
abilities for its domestic development, because the
international tax system doesn't keep up. This is made worse by
globalisation and also digitalisation.
We hope to see that residence and source countries interact
in a more balanced manner so each country has its bite of the
cake. For the hosting countries, their policies may differ from
one country to another. China used to treat its domestic
enterprises unfairly to usher in foreign capital, which may be
happening nowadays in some jurisdictions. However, if that
country wants a more balanced international tax system, it
should be able to do so. The world's international tax system
should allow some flexibility so that independent jurisdictions
have choices to opt for public policy options that facilitate
economic development. Of course policy options in one state
should hot harm another state.
ITR: The SAT has been more open to both domestic
and international media – how does the media help the
SAT perform better?
TL: We use the media to inform people and
inform the world of our mentality and of our values. We also
educate taxpayers so that they can understand the mentality
behind the policy, which is good and helping a lot to improve
cooperation between taxpayer and tax administration.
We want to convey the correct message to the world that
China is still a comparatively tax-friendly country and is a
transparent country on tax matters. We think we are doing the
correct things for economic development. If the economy in
China goes well, it is going to have a positive impact on the
world. Policy on international transactions is very sensitive
to cross-border deployment of production factors. As an
international tax policy formulator I think it's important to
be open and inclusive.
ITR: What is the most important initiative on your
agenda in 2015?
TL: Of course it's
the G20 tax reform. We should still be active in the G20
tax reform. Number two is to apply the seven outcomes of the
BEPS action plan, which were translated into Chinese and
published on SAT's official website, many of which will be
translated into our domestic legislation and regulations.
Number three is the auditing of international transactions.
Number four is the development of IT systems to support what
we're doing. Number five is to set up organisations to
discharge the functions of tax administration on outbound
investment and offshore income. Through all these efforts, we
hope to be in line with what is happening in the world and to
establish a system that can stand up to the challenges of the
reforming of international tax rules.