Meeting with Department of Taxation Administration for Large Enterprises, State Administration of Taxation (SAT)

2016-04-19 | Beijing

DG Miao welcomed the representatives from the European Chamber while DDG Yang briefed the participants of the background of the ‘Thousand Enterprise Group Financial Data Collection’ campaign. The main purpose of the campaign is to conduct analysis on the taxation and economic development, further improve the taxation services and deepen taxation reform of large enterprises, which are always the focus of taxation. The analysis will also serve as an important reference for policy makers in the central leadership.

Yefang thanked the officials from the SAT for their time and the willingness to listen to the EU businesses. She briefly introduced the European Chamber in general. She then raised the concerns and challenges some member companies impacted by this campaign as follows with elaborations from Matthew, Shirley, Rebecca and Jianying:

1. Foreign companies have faced difficulties and challenges when complying with this request in a timely fashion. The notice period of two weeks is too short for the task at hand. In order to be able to provide accurate data, many foreign companies will need to liaise with their headquarters. This needs a time-consuming process, which will also significantly increase companies’ compliance burden and business costs.

2. In the notification issued by the SAT, there is lack of legal basis (such as the Law of the People's Republic of China on Tax Collection an administration) to provide required data. Without such a reference, it is very difficult for FIEs to go through internal legal process and have access to the data. In addition, some of the data required has been submitted to the authorities before.

3. It is also important to note the technical difficulties with large data transfers that foreign companies’ China-based subsidiaries will have to conduct with their headquarters in order to compile all the information needed for this submission. In some cases, the compilation has to be done manually which takes more time and resources.

4. Data security is another major concern. The senior representative from the Cybersecurity working group has also voiced some technological concerns. It needs to be ensured that any data provided by companies remains secure and is not being made available or leaked outside of the SAT, or used for purposes other than the one stated. In this regard, ‘data security’ encompasses the following aspects: the process of the data collection, transfer of the data as well as the subsequent storage of data. These issues are crucially important concerns to foreign companies, which have a right to know how their data is stored. We advise the SAT to address these concerns by being open and fully transparent about the technology it is using to collect and store the data and by providing this information to all affected companies.

5. Some provincial or municipal tax authorities have made use of this campaign to ask FIEs to conduct self-auditing and pay the tax that should have been paid earlier. It has caused quite some confusion and worries among the companies that are involved in the campaign.

The Finance and Taxation working group came up with the following recommendations and officials from the SAT responded after all the recommendations were made.

1. Further clarify the purpose, significance, mechanism of the collection effort and the expectation from the tax payers. Explicitly make it public the legal basis of the campaign, which was agreed by the SAT. They will work on it after the meeting.

2. Extend the deadline where needed. According to the SAT, in some localities, the affected FIE could apply for an extension if it indeed has difficulties to submit all the data.

3. Regarding to the concern over the data security, it is recommended to have their own choice as for how to collect the data instead of the compulsory use of the tool assigned by the SAT. According to the officials familiar with the tool and the system, the SAT has provided a “green tool” to collect data which can be encrypted by the user. Once the data is collected, it will be sent to local tax authorities and then the SAT. The whole process is safe and secure and no additional data will be collected from the companies. FIEs can use their own tools to get the data, but they need to make sure that the format is consistent with that required by the SAT.

4. Make it clear to the public that local tax authorities shall not make use of the campaign for their own interest. In response, DG Miao said that the SAT has never meant to ask solicited companies to pay the tax that should have been paid earlier with this effort and the SAT will not do so. They will conduct some internal check to address this issue accordingly.

5. It is also recommended that those companies that have provided quality data in a timely manner be seen as voluntary compliance and treated favorably by the tax authorities.

To conclude, DG Miao expressed his appreciation of the feedbacks provided and asked for more information about the member companies affected by the collection campaign.

The members of the Chamber would like to work with the authorities, but do need more information and explanation. More information about the member companies affected will be prepared by the Chamber. It will continue to serve as a platform between the government authorities and European businesses to create a better investment environment in China. The Chamber also hopes to continue the dialogue and exchanges with the SAT in the future.