On 14 to 16 May 2018, the “Belt and Road Initiative Tax Cooperation Conference” (or BRITCC) was held in Astana, Kazakhstan. It was jointly organised by the Chinese State Administration of Taxation (SAT), the Kazakh State Revenue Committee and the OECD. The conference was attended by approximately 200 delegates from more than 50 jurisdictions.
Four tax topics, namely the rule of law, taxation services, dispute resolution and capacity building, were discussed at the conference. It was agreed that much support is needed to achieve better coordination and cooperation among the tax administrations of the Belt and Road (“BRI”) jurisdictions. As a result, the Astana Proposal was put forward by the BRITCC participating jurisdictions for enhancing cooperation in tax matters.
During the conference, Mr. Wang Jun, Director of the SAT, proposed to:
Madam Wang Xiaoyue, KPMG China tax partner (formerly deputy director general of the international tax division of the SAT), made a speech at the “tax dispute resolution” panel and shared insights on BRI project tax dispute resolution.
For key corporate tax issues faced by “going out” enterprises, and SAT support initiatives, please read the following KPMG publication:
As highlighted in KPMG China Tax Weekly Update (Issue 17, May 2018), Premier Li Keqiang, at an 25 April 2018 executive meeting of the State Council, outlined seven tax reduction measures to provide greater support to innovation and small enterprises. One of the measures is to expand, nationwide, the pilot incentive for venture capital (VC) and business angel investment in innovative start-ups.
The pilot program has operated since January 2017 for CIT purposes, and from July 2017 for Individual Income Tax (IIT) purposes, in eight designated locations, including Beijing-Tianjin-Hebei, Shanghai, Guangdong, Anhui, Sichuan, Wuhan, Xian, Shenyang, as well as Suzhou Industrial Park. Under the relief, where investments are made in science and technology enterprises seeking capital or start-up stage support (‘technology start-ups’), and where the investment is for a period of two years or more, then 70% of the investment amount can be offset against the taxable income of the investor (see KPMG China Tax Weekly Update (Issue 18, May 2017) for details).
On 14 May 2018, the Ministry of Finance (MOF) and SAT jointly issued Cai Shui  No. 55 (“Circular 55”). Circular 55 extends the following incentives nationwide, from 1 January 2018 for CIT purposes, and from 1 July 2018 for IIT purposes:
For detailed implications of the tax incentives for VC enterprises and business angels, please read the following KPMG publication:
In addition to Circular 55, the detailed guidance on the following three State Council’s measures are already in place:
(see KPMG China Tax Weekly Update (Issue 19, May 2018) for details)
The detailed rules for the following three measures, outlined by the State Council, are still under development, and we will update on these once released.
Currently, a domestic airline company purchasing or leasing aircraft from abroad is subject to import VAT at 5% at the importation stage. This applies for imported aircraft with a net weight of 25 tons and above. The VAT is imposed by the Customs authorities on behalf of the tax authorities.
At the same time, specifically for leases of aircraft, VAT at 16% (17% before May 2018) is imposed on payments for the use of the aircraft at the time it enters China. This is levied based on the rental income derived by the overseas lessor. The tax should, in principle, be withheld by the domestic airline leasing the aircraft and paid to the tax authorities. However, in most instances, the 16% VAT is borne by the domestic airline company in view of the terms of the leasing arrangement (i.e. gross up).
Consequently, between the VAT collected by the Customs authorities and the tax authorities, the leasing of aircraft from abroad is subject to double taxation in China. In theory, the input VAT incurred can be credited against the output VAT due to by paid by the domestic airline companies. However, for some domestic airline companies, income from the provision of international flight services outweighs that from domestic flight services. This can lead to an imbalance between the input VAT and output VAT amounts, as no VAT is levied on the international transport services provided, and yet challenges can be encountered in making use of the input VAT (the excess input VAT may not be offset-able against future output VAT due). As such, cash flow challenges can arise.
To address this, on 11 May 2018, SAT and the General Administration of Customs (GAC) jointly issued SAT Announcement  No. 24 (“Announcement 24”). This clarifies that, from 1 June 2018, the Customs authorities will cease to impose VAT at importation stage on imported aircraft. This is for leasing arrangements falling under the import supervision codes of 1500 (lease less than a year), 1523 (lease trade) and 9800 (lease taxation).
Announcement 24 consequently eliminates double taxation for leasing aircraft from abroad and relieves the burdens for airline companies.
On 14 May 2018, the SAT issued Announcement  No. 25 (“Announcement 25”) which clarifies transition arrangements for the implementation of SAT Announcement  No. 35 (“Announcement 35”), issued in September 2017.
Announcement 35, which applies from 1 November 2017, clarifies the improved tax refund (exemption) administration for foreign trade integrated services enterprises (FTISEs*). Under this, a FTISE may obtain a tax refund (exemption) on behalf of a domestic manufacturing enterprise without needing to purchase the exported goods first. Announcement 35 replaces SAT Announcement  No. 13 (“Announcement 13”), which previously governed the manner in which FTISEs help exporting enterprises obtain tax refunds (exemption) on export (typically for VAT). Under the prior procedures the FTISE had to purchase the export goods from the manufacturer, and then makes the refund/exemption declaration itself as part of the export process (see KPMG China Tax Weekly Update (Issue 40, October 2017) for details).
Announcement 25 was released with SAT interpretive guidance, including a practical example. This explains why Announcement 25 is needed:
For such cases, neither Announcement 35 nor Announcement 13 would provide a tax refund. To address this, Announcement 25 sets out a transitional rule, i.e. goods declared for export by FTISEs in the period from 1 November 2017 to 28 February 2018, which meet the general Announcement 13 requirements, will be granted refund/exemption as per Announcement 13 before 30 June 2018. The application should be made with the in-charge tax authorities of the FTISEs. That is, the special invoice may be continue to be issued by the manufacturer, to the FTISE, which will claim the refund as exporter of record, for an extended transitional period.
* FTISEs refer to foreign trade enterprises which provide export-related services (including logistics, customs declaration, credit guarantee, financing, foreign currency receipts, tax refund etc.) to small and medium sized Chinese manufacturing enterprises.