The Institute’s China Taxation Conference 2024, held on 1 June, brought together leading experts in taxation to discuss a range of current Mainland and cross-boundary tax issues, including developments in the Greater Bay Area (GBA). A panel discussion, moderated by Sarah Chan, Chair of the Taxation Faculty Executive Committee (TFEC) and Tax Partner at Deloitte China, featured experienced panellists who shared their insights on the integration of the GBA and the implications of international tax developments.
The panellists included Jane Hui, member of the Taxation Faculty China Tax Support Group (CTSG) and Leader of the China Tax Centre, as well as Partner in International and Transaction Tax at Ernst & Young Tax Services Limited; Kenneth Leung, Leader of Supply Chain and Indirect Tax at KPMG China; Cecilia Lee, member of the CTSG and Hong Kong Transfer Pricing Leader at PwC Hong Kong, China; and Vicky Wong, Institute Council member and member of the TFEC, and Tax Director at China Resources Enterprise Limited.
Tax incentives and compliance challenges
Chan opened the discussion by highlighting the significance of tax incentives in the GBA and the need for companies to be cautious about compliance with the eligibility criteria to avoid future liabilities.
Providing a corporate perspective, Wong emphasized the importance of self-assessment mechanisms. She noted that companies often face difficulties in interpreting tax policies and ensuring compliance, explaining that, without clear guidelines, there are potential risks of retroactive tax assessments that can impact cash flow.
Hui added that thorough pre-assessment is crucial. She shared that while many clients have expressed eagerness to relocate operations to benefit from tax incentives across GBA, she stressed that business operations must align with tax planning to avoid compliance issues. Hui also highlighted the importance of the continuous monitoring of business operations to ensure ongoing eligibility for tax benefits.
Interaction with tax authorities
Chan posed a question about the interaction between tax professionals and tax authorities. Leung shared his experience with regional tax authorities across the Mainland, noting significant differences in their approach. He recounted his interactions with tax offices across various provinces, highlighting the advantage of leveraging experiences from more developed regions like Guangdong to facilitate discussions in less developed areas.
Lee emphasized building professional relationships with tax authorities and advocated for informal, non-attributable discussions to gain insights and address uncertain issues. She stressed the importance of understanding the local context and the perspectives of individual tax officials to navigate complex cases effectively.
The role of big data
Chan then raised the topic of big data and its implications for tax compliance, suggesting that the integration of advanced systems like the Golden Tax System (GTS) Phase IV indicated a trend towards more sophisticated tax administration.
Hui pointed out that the use of big data to flag anomalies by tax authorities could lead to scrutiny even for minor discrepancies. Lee then discussed the subjective nature of data interpretation and its potential to mislead. Sharing examples of discrepancies in data reporting across countries and industries, she emphasized the importance of understanding the context and specifics behind the data.
Commenting on the GTS, Leung suggested the system could be further enhanced by integrating data from other government bureaus into its warning systems. He explained that the lack of cross-departmental data interaction could lead to unjust complications, quoting a case involving land appreciation tax.
Individual tax policies in the GBA
Shifting the discussion to the topic of individual tax policies in the GBA, Chan invited the panellists to share their observations and industry perspectives on the attractiveness of GBA tax policies for Hong Kong taxpayers.
Wong noted that with the new policies, companies faced less friction when considering relocating their headquarters or restructuring, especially when their employees could benefit from tax incentives. She observed that Hong Kong employees were more willing to work in the GBA due to the optimized tax policies, whereas the improved process of applying for tax refunds had also simplified corporate decisions.
Hui echoed this observation but noted that the requirement to pay taxes up front and receive refunds only later could create cash flow challenges. She suggested that this could be improved to ease the financial burden on taxpayers.
Global expansion of Chinese companies
For the last question, Chan turned to the trend of Chinese companies expanding globally, particularly on the complexities of indirect and turnover taxes, and transfer pricing (TP).
Leung pointed out that, with Chinese companies becoming more recognizable internationally, they were becoming increasingly prone to attention from foreign tax authorities. He also noted that Chinese companies preferred consulting with professionals who understood both the Chinese and international tax environments, which gave Hong Kong professionals a clear advantage.
Lee explained that the principles of TP in these situations were not so different from those initially used when assisting foreign companies to set up operations in China, such as pricing strategies, establishing branches or subsidiaries, staffing decisions, and addressing permanent establishment issues. The fundamental TP principles remained unchanged, but the specific issues needed to be re-evaluated in the new context.
Over 180 members tuned in to the face-to-face event at the Institute. In addition to the panel discussion, respected officials from the Shenzhen Tax Service, State Taxation Administration presented on the latest tax incentives and tax developments in Hetao and Qianhai.
If you missed out on attending the conference in person, the archived webinar is now available for enrolment here.
