Tizhong Liao

Tizhong Liao has been deputy director general of China’s State Administration of Taxation’s International Taxation Department since 2006. He is also the first vice-chair of the UN’s Committee of Experts on International Cooperation in Tax Matters, working alongside fellow Top 50 entry, Armando Lara Yaffar.

Liao represents a strong voice in the UN Tax Committee meetings and has demonstrated an approachable attitude to the international tax community from an SAT perspective.

Tizhong Liao: China started looking into transfer pricing issues in the late 1980s. While the early focus of transfer pricing investigations was mostly on tangible goods transactions, it has since been expanded into all sorts of other transactions, particularly those involving intangibles and services. As a developing country, China faces a number of difficult challenges, many of which are not answered by the OECD, such as a lack of appropriate comparables, quantification and allocation of location specific advantages (LSAs), and identification and valuation of marketing intangibles.

TL: The challenges are threefold. First, legislation needs to be strengthened. The Individual Income Tax Law and its DIRs contain few substantial provisions about international taxation. The Tax Collection and Administration Law and its DIRs contain limited provisions supporting international tax administration. Both should be updated as soon as possible so as to back up daily work.

Second, international taxation should be reorganised in terms of administration. For the time being there is no separate division shouldering tax administration of residents’ offshore income. Functions regarding tax administration of residents’ offshore income are split in different departments. For example, foreign tax credit goes to the Income Tax Department, controlled foreign company goes to the International Tax Department and compliance risk analysis of large taxpayers goes to the Large Business Department.

Thirdly, international taxation is very much understaffed. In the International Tax Department, there are four people undertaking tax treaty negotiations, interpretations and applications; three people shouldering non-resident taxation; seven people doing transfer pricing audit, APA, TP-related MAP, CFC, thin-cap and GAAR; three people responsible for tax administration of residents’ offshore income and three staff doing exchange of information. It is impossible to fulfil all the obligations properly with such understaffing.

For a quality administration of the international aspect of income taxes for China, the second largest economy, in an open world, the primary thing to do is let the government realise the importance of international taxation, then legislation can be updated, organisation can be improved, resources can be properly deployed and, in the end, a better tomorrow can be expected.