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China: Advance ruling system being explored


In recent years, the focus of taxpayer services from the Chinese tax authorities has gradually shifted.

Traditionally, the Chinese tax authorities tend to stress tax administration at a relatively basic level, such as improving the attitude of tax officials as service providers, enhancing tax compliance, and reducing tax collection costs, etc. Now the Chinese tax authorities are setting their sights on more enhanced taxpayer services such as guiding taxpayers to comply with tax regulations on their own, helping taxpayers to manage tax risks, and providing taxpayers with more customised assistance. Among the types of enhanced taxpayer services, the need for an advance tax ruling (ATR) system is most acute given the considerable scope of uncertainties in China's tax laws.

An ATR system can benefit both taxpayers and the tax authorities in China. Taxpayers would obtain more certainty in tax treatment and outcome before entering into transactions. For the Chinese tax authorities, an ATR system would significantly enhance the degree of tax compliance by taxpayers and improve the quality of tax administration.

In 2008, the State Administration of Taxation (SAT) in China formed the Large Enterprise Division, and started to handle requests from certain large enterprises at a more senior level. In 2009, the SAT unveiled a system of carrying out direct tax administration of selected enterprises, and began to provide customised taxpayer services to them on a trial basis. KPMG has been actively assisting the Large Enterprise Division to implement an ATR system in China. The formal announcement and commencement of a pilot ATR system is believed to be imminent.

As for the scope of taxpayer candidates eligible to obtain ATRs, the pilot scheme is expected to be initially limited to large enterprises which have executed tax compliance agreements with the tax authorities. This is because applications for ATRs normally require close attention to the presentation of factual material, and a high degree of technical detail, which may be beyond the capacity of small and medium-sized enterprises in China. It is anticipated that both prospective and past transactions fall within the scope of matters to be covered by the ATR system in China. Assuming the pilot program proves to be successful, it can then be expanded to cover all taxpayers in China.

Successful establishment of an ATR system needs to be supported by a professional implementation team from the SAT. In that regard, we understand that the SAT is developing plans to allocate sufficient human resources to staff this new functional unit, and continuously improve the quality of those resources.

The ATR system is expected to be administered transparently, with rulings to be published on the SAT's website, without disclosing the taxpayer's identity. This step should ensure that the views of the SAT in particularly contentious areas of the tax laws also become more readily accessible.

KPMG China believes that an advance ruling system is an important development in modernising China's tax administration system and has far reaching implications for both the taxpayers and the PRC tax authorities. KPMG strongly supports the SAT's initiative and is committed to provide advisory support in designing and refining the system by leveraging off experiences from other countries.

Khoonming Ho ( and Lewis Lu (


Tel: +86 (10) 8508 7082 & +86 (21) 2212 3421


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