On 26 December 2016, eight authorities including the Medical Reform Office of the State Council, the National Health and Family Planning Commission, and the State Administration of Taxation (SAT), jointly issued Guo Yi Gai Ban Fa  No. 4 (”Circular 4”). This aims to implement the “two invoices system” for drugs procurement by public medical institutions, which will standardize drugs distribution processes, reduce intermediate steps, and hopefully lower high drug prices.
|Definition of “two invoices system”||
|Rollout of “two invoices system||
*Comprehensive Healthcare Reform pilot province and Public Hospital Reform pilot cities include, inter alia, Fujian, Jiangsu, Anhui, Qinghai, Shaanxi, Shanghai, Zhejiang, Sichuan.
|Invoice management for drugs purchase and sale||
* By adopting the “two invoices system”, the unnecessary invoice “pass through” within the value chain is expected to be eliminated, as well as increasing transparency over the pricing of drugs. This will also induce drug manufacturers to change their existing business model. With regard to the impact of the “two invoices system”, you may access the article Challenges of the two invoices system for China’s pharmaceutical industry in China – Looking Ahead, 6th Edition, which is produced by KPMG in collaboration with the International Tax Review.
As highlighted in KPMG China Tax Weekly Update (Issue 49, December 2016), on 21 December 2016, the Ministry of Finance (MOF) and the SAT jointly issued Cai Shui  No.140 (“Circular 140”). This sets out new Value Added Tax (VAT) rules applicable to those sectors which recently transitioned from Business Tax (BT) to VAT, being financial services, real estate and construction services, and lifestyle services, and clarifies a number of uncertainties which have arisen in practice.
Circular 140 clarifies that, in the asset management sector, the asset manager shall be the VAT taxpayer and it shall account for VAT on a consolidated basis in respect of all of the taxable activities occurring during the operating period for which asset management products are supplied. In this regard, the MOF and the SAT further issued Cai Shui  No. 2 (“Circular 2”) on 6 January 2017, granting a half-year transition period to asset managers. Details are as follows:
* For detail analysis of Circular 140 and its impacts on businesses, please refer to the following KPMG China Tax Alert:
As highlighted in KPMG China Tax Weekly Update (Issue 25, July 2016), (Issue 26, July 2016), (Issue 33, August 2016), (Issue 37, September 2016), (Issue 41, November 2016), (Issue 45, December 2016), (Issue 48, December 2016) and (Issue 1, January 2017), the Organisation for Economic Cooperation and Development (OECD) has continued to release new policy documents for the continuity of BEPS work subsequent to the issuance of the October 2015 BEPS Deliverables.
On 6 January 2017, the OECD released a discussion draft document which includes draft examples, to be included in an updated Commentary to the OECD Model Tax Convention (MTC), for public comment. The examples relate to the tax treaty entitlements of non-collective investment vehicles (non-CIV) funds in light of the BEPS Action 6 proposed principal purposes test (PPT) rule. Non-CIV funds include a wide variety of different arrangements, including sovereign wealth funds, pension funds, private equity funds, real estate investment trusts (REITs), securitization vehicles, and others.
On 29 December 2016, the Ministry of Finance (MOF), the General Administration of Customs (GAC) and the State Administration of Taxation (SAT) jointly issued two circulars. These clarify that imports of goods and equipment directly used for marine and land exploration/exploitation of oil and gas will, in the 13th Five-Year-Plan period (i.e., from 1 January 2016 to 31 December 2020), l continue to be entitled to enjoy relevant tax incentives.
In addition, Circular 68 and Circular 69 also clarify the administrative procedures for application of the exemption for imported materials.