Special Focus
China: Looking Ahead

Special Focus Archive

Looking ahead

Khoonming Ho, tax partner in charge of China and Hong Kong SAR, KPMG
Interesting times – A retrospective on how tax policy has changed

“May you live in interesting times!” – a Chinese saying, so it seems. This cannot be more apt when it comes to the development of tax policy in China over the past three decades. The last 30 years have witnessed tax policy changes of such magnitude that will not be seen in China for some time to come, say Eileen Sun, David Ling and Zichong Xu of KPMG.
Trust but verify, and verify some more

A new kind of thinking on tax compliance management is steadily emerging. The nascent Tax Compliance Agreement framework is premised on mutual trust between the tax authorities and taxpayers. Time will be required for the building up of such trust. But the first step in the right direction has been taken. Chris Ho, Karmen Yeung and Tracy Zhang of KPMG believe that these changes can have a big impact on the manner in which foreign corporations manage their tax compliance risk in China.
The long arm of China’s GAAR

While GAAR are new in China taxation, they have made great waves in the past couple of years. The controversial Circular 698 on indirect disposals will be here to stay in one form or another, but not without increasing resistance from foreign corporations and tax administrations. John Gu, Chris Xing and William Zhang of KPMG expect that the SAT may have to provide clearer guidance and explore an advance ruling system as a way to address the concerns of taxpayers.
Redefining the rules – A new transfer pricing landscape

Chinese transfer pricing rules and practices will break new ground in the coming years, finding solutions that cater to the special economic and commercial circumstances of China. Factors such as China market premiums and location savings will become more important in applying the arm’s-length principle, believe Cheng Chi, Irene Yan and Lu Chen of KPMG
Now you see it, now you don’t

Under the prevailing tax regulations in China, the conditions for corporate restructuring reliefs are either over-stringent or highly ambiguous. The 12th Five Year Plan has brought hope that things might get better on this front because the plan encourages industrial consolidation to improve domestic enterprises’ global competitiveness. The Chinese tax authorities may therefore see the need to relax or clarify the rules, point out Grace Xie, Vincent Pang and Abe Zhao of KPMG
When goods meet services … finally

The merging of VAT and Business Tax to produce a unified goods and services tax (GST) type of indirect tax is necessary for the healthy development of the Chinese economy. However, formidable obstacles lie in the path of reform, the greatest of which is that the central/local government revenue sharing system would be upset. Dealing with such obstacles will be a delicate balancing act, explain Lilly Li and Anthony Chan of KPMG
Beyond processing trades – new customs developments

With China moving from an export-driven economy to one that encourages domestic consumption, the traditional processing trade regime which has served China well in past decade is due for upgrading and modernisation. Such policy changes will bring both risks and opportunities to businesses. Alex Capri, Melsson Yang and Cheng Dong investigate.
Re-dividing the pie

Income redistribution and law enforcement are the two key pillars of the forthcoming individual income tax (IIT) reform. Businesses and individuals will feel the impact of the changes. There will be continued focus on the tax withholding obligation of businesses in respect of their employees. Dawn Foo and Yong Yong Ng of KPMG believe commercial transactions of entrepreneurs, including sales of businesses to foreign corporations, will be placed under closer scrutiny.
Green by any other name

China will rationalise the Resource Tax regime and use tax policies to discourage environment pollution and promote renewable energy. Businesses should closely monitor developments in this regard and anticipate the risks and opportunities created by new fiscal measures, say Jean Li, Jonathan Jia and Shirley Shen of KPMG
Hot and bothering – property tax reform

Taxation is a major tool for the central government of China to tackle the issue of increasingly heated property markets in China. It is likely that the central government will revamp the real estate tax regime in the coming years to make the taxation tool more effective. Property owners, developers and investors such as real estate funds will directly or indirectly be affected by the change, warn Lewis Lu, Chris Abbiss and Jennifer Weng of KPMG
Reinventing Hong Kong – New tax policies needed for plan

The 12th Five-Year Plan of China recognises the competitive advantages of Hong Kong and sets out some initiatives to bolster its unique position. Exactly how the Hong Kong government uses tax policies to implement the initiatives proposed in the Five-Year Plan will be critical for the continued prosperity of Hong Kong, say Ayesha Macpherson, Darren Bowdern and Garry Laird of KPMG

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