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2 June, 2016
Multinational companies operating in China will be required to report on the tax they pay relative to their income in the different territories in which they operate, as part as global efforts to clamp down on tax avoidance through base erosion and profit shifting (BEPS).
China has agreed to automatically exchange country-by-country tax information collected under the new rules with at least 38 other participating countries, as part of a project led by global tax policy forum the Organisation for Economic Cooperation and Development (OECD).
Representatives from China and five other jurisdictions signed the OECD's multilateral competent authority agreement for the automatic exchange of country by country reports (CbC MCAA) at a signing ceremony in Beijing, taking the total number of signatories to 39, the OECD said. China, Canada, Iceland, India, Israel and New Zealand join early signatories including the UK, France and Germany in agreeing to automatically exchange this information between each other.
Automatic exchange of country by country reports was one of 15 actions recommended by the OECD as part of its BEPS package of measures, designed to prevent multinational companies from shifting profits to low tax jurisdictions and exploiting mis-matches between different tax systems so that little or no tax is paid.
The OECD said that exchanging this data would "help ensure that tax administrations obtain a complete understanding of how [multinational enterprises] structure their operations, while also ensuring that the confidentiality of such information is safeguarded".
The BEPS project was of "major significance" to developing economies in particular, due to their heavy reliance on corporate income tax from multinationals, the OECD said.
China's State Administration of Taxation (SAT) is expected to publish a package of transparency measures aimed at multinational companies operating in the country later this month, according to International Business Times. The document will cover transfer pricing arrangements and a new requirement for companies to disclose the identity of their related parties, as well as country by country reporting requirements, according to the report.
The OECD's country by country reporting standard requires affected companies to supply aggregate information about the way in which their annual income and taxes are allocated in each jurisdiction where they do business, together with "other indicators of the location of economic activity" within the corporate group, according to the OECD. The standard also covers information about which parts of the group do business within which jurisdiction, and the business activities that each of those entities participates in, it said.
For further information, please contact:
Ian Laing, Partner, Pinsent Masons
ian.laing@pinsentmasons.com
