On August 27, 2013 China signed the Convention on Mutual Administrative Assistance in Tax Matters (the Convention), making China the 56th signatory to the Convention. With China’s signature, all G20 countries have now signed the Convention. This is the first time China has signed a multilateral tax instrument. It means that China has taken a further step in the adoption of international standards in the exchange of information and to cooperate with other countries in issues related to international tax.
The Convention is a multilateral agreement for bilateral tax cooperation among the signatories. The Convention was developed by the OECD and the Council of Europe in 1988 and amended in 2011 and is open to all countries, including non-OECD. For a complete list of the signatories to The Convention please see the following chart of signatures and ratifications at: http://www.oecd.org/ctp/exchange-of-tax-information/Status_of_convention.pdf.
The Convention is by far the most comprehensive multilateral instrument for international tax cooperation and exchange of information among tax authorities. The Convention:
- provides international standards for Exchange of Information.
- provides governments with a variety of means in the assessment and collection of taxes:
- Exchange of information, not only upon request and spontaneous, but also automatic EOI
- Recovery and enforcement of foreign tax claims,
- Administrative cooperation between authorities like mutual presence in administration offices and participation in administrative inquiries (joint audits on Transfer Pricing), or by sharing best practices and experiences.
- covers all forms of taxation and other compulsory payments to the government except for customs duties. It applies to taxes on income, profits, capital gains, and net wealth levied at the central government level, but also covers local taxes, compulsory social security contributions, estate, inheritance and gift taxes.
- ensures compliance with national tax laws, while respecting the rights of taxpayers. The Convention has strict rules to protect the confidentiality of the information exchanged and to ensure data protection.
- allows that information obtained under the Convention from a member country may be transmitted to other authorities and may be used for other purposes, unless specific restrictions are raised by participating countries.
Overall, the Convention improves the ability of tax authorities globally in tackling tax avoidance and tax evasion. Compared to most existing bilateral double taxation agreements and tax information exchange agreements, the Convention is multilateral, has a broader scope of co-operation and covers all taxes.
For the full content of the Convention please use the following link:
G20 commitment to Global Tax Transparency
During the G20 Top on September 6 the G20 countries endorsed the OECD action plan, “A Step Change in Tax Transparency.” The G20 is committed to automatic exchange of information as the global standard to be presented at the next G20 gathering in February 2014 and is committed that such global system becomes effective between G20 countries by the end of 2015. The G20 considers the multilateral tax as the legal basis and the G20 encourages all countries worldwide to join this Convention.
Significance to China
The signing of the Convention provides more opportunities for China to access the international tax system and enables it to gain unique experience in international tax practice. This improves its tax administration system by potentially increasing transparency in tax administration and its move toward an international standard. It also commits China to cooperate in tax administration with other countries. It is expected that the Chinese tax authorities will take further steps in implementing the Convention in the future. As China is part of the G20 it may be expected that the global system of automatic exchange of information will also be introduced in China.
Significance to taxpayers
The adaptation to the international tax standard in exchange of information and the Multilateral Tax Convention will encourage the Chinese tax authorities to understand and learn from the practice of the tax administration system of the Conventions’ member countries with respect to prevention of tax avoidance and evasion. Due to the development of a global system of automatic exchange of information there exist distinct and real possibilities of an interconnected world where the information about foreign bank accounts and foreign assets held will become known to the Chinese regulatory authorities. Consequently, taxpayers with Chinese investments or Chinese investors with overseas investments may be exposed to more cross border exchange of information and more local compliance requirements. Confidentiality will be history.
In view of the above it is paramount to comply with your tax obligations and responsibilities in China including, without limitation, tax reporting and filing of tax returns in a timely fashion.
How Amicorp can help
Amicorp Group with its network of 40 offices in 28 countries specializes in corporate management and administration, with a dedicated team focusing on international tax structuring implementation and administration. We also provide tax and accounting compliance services in each local jurisdiction.
Within this constantly changing tax environment it may still be possible for China residents to set up beneficial structures used for foreign investments and transactions that provide asset protection, compliant tax deferral and/or estate planning, but which also do not yet have to be reported in personal tax returns (zero tax reporting). For many years, Amicorp, in collaboration with our clients’ legal and tax advisors, has implemented robust compliant structures for clients from other emerging market economies.
Amicorp anticipates a large shift in the type of structures used by Chinese clients to hold assets offshore, including a move away from simple BVI companies. Chinese clients may change their focus to robust legal structures which do not yet have to be reported in your personal tax returns as part of the annual disclosure requirements. These structures include:
- Personal holding companies in non-CFC countries;
- Personal holding companies in non-CFC countries;
- Fiduciary foundations with economic rights, for instance the Dutch STAK;
- Investment funds for collective investments;
- Combinations of these vehicles.
If you would like more information on this subject or any other Amicorp product or service, please do not hesitate in getting in touch with us.