China has recently taken significant steps to strengthen its tax system, focusing on enhancing tax certainty and enforcing tax laws more effectively. These measures aim to create a better business environment for both domestic and foreign companies.

One of the notable initiatives is the inauguration of China’s first specialized tax tribunal in Shanghai, located within the Shanghai Railway Transportation Court. This tribunal is dedicated to handling first-instance administrative cases where tax authorities are the defendants. It aims to improve tax dispute resolution and protect taxpayer rights, with its first public hearing taking place on March 29, 2024.

Furthermore, although China lacks a formal national tax ruling procedure, local tax authorities are exploring such mechanisms. The Shanghai tax authority, for instance, has recently issued tax rulings for two complex cases. In one case, it confirmed the application of corporate income tax relief for a corporate restructuring involving equity transfers among companies. In another, it indicated that VAT and land appreciation tax exemptions would be available for a company disposing of land use rights to the government, provided certain conditions are met.

Additionally, Shenzhen’s tax authority introduced an innovative transfer pricing (TP) pre-assessment service at the end of 2023. This service allows taxpayers to gain preliminary assessments of their TP arrangements to determine their risk levels and likelihood of audits, offering a faster alternative to the traditional advance pricing agreement procedure.

On the judicial front, new guidance issued by the Supreme People's Court and Supreme People's Procuratorate as of March 20, 2024, clarifies the application of criminal law to various tax offenses. This includes penalties for tax underpayment, evasion, and fraudulent tax refunds, with possible imprisonment and fines based on the offense’s severity. The guidance specifically targets the use of ‘yin yang contracts’—dual contracts used to evade taxes, a practice that has been particularly scrutinized in the entertainment industry.

These developments reflect China's commitment to refining its tax system and enhancing judicial reforms to support a transparent and efficient legal environment for business operations. Thus, consulting with professional tax experts is essential to ensure compliance with the Chinese tax system, especially as the government now more easily imposes fines on both local and foreign companies for errors.

At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com.

PHC Advisory is a company of DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance.

The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way.

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