贝克·麦坚时月度税务简报（精选版）
本期税务简报，贝克·麦坚时中国税务团队与您分享以下税务动态：
狼真的要来了：中国版CRS 7月正式生效，海外资产或将“无处藏身”。2017年7月1日，《非居民金融账户涉税信息尽职调查管理办法》正式生效。在此之前，中国已于2015年12月6日签署《金融账户涉税信息自动交换多变主管当局间协议》，并承诺最晚将于2018年启动自动情报交换。金融账户涉税信息自动交换的时代即将到来。届时，中国税务机关将会获取更多关于中国税收居民全球所得信息，从而增强对中国税收居民的全球所得征税的能力。
德发案：史上最长税务行政诉讼案尘埃落定，拍卖价并非“高枕无忧”。2017年4月，最高人民法院对广州德发房产建设有限公司（“德发”）诉广州市地方税务局第一稽查局一案作出判决。该案件从行政复议、一审、二审、广东高院再审驳回，至此次最高院提审判决，历时超过7年。此次判决，最高院支持了税务机关对德发房地产拍卖交易的核定征税，但撤销了税务机关加征滞纳金的决定，颇为耐人寻味。
China's Formal CRS Legislation Applies from 1 July 2017
On 19 May 2017, the SAT, the Ministry of Finance (MOF), the People's Bank of China, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission finally issued the formal common reporting standards (CRS) legislation, i.e., Bulletin 141. Bulletin 14 provides key provisions on financial institution reporting, reportable financial accounts, due diligence procedures, and information requirements. The reporting standards and due diligence procedures under Bulletin 14 are basically consistent with the OECDCRS proposal. Bulletin 14 applies from 1 July 2017. For a more detailed discussion of Bulletin 14, please refer to our October 2016 issue of China Tax Monthly, in which we discussed a draft containing basically the same provisions as those of Bulletin 14.
Prior to Bulletin 14, China signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information ("CRS MCAA") on 16 December 2015. As of 22 June 2017, the CRS MCAA has 92 participating jurisdictions.2 Although China has not activated the exchange relationship under the CRS MCAA, we expect the automatic exchange of CRS information will soon become a reality in China.3 As non-PRC residents have very limited channels of investing in China or bringing capital to China due to China's foreign currency control, China's automatic exchange network for CRS information is unlikely to have a material impact on non-PRC residents. However, this automatic exchange network could immediately impact PRC residents who hold offshore assets.
China has long been a world-wide taxation jurisdiction. However, due to lack of information on Chinese residents' offshore income, the Chinese tax authorities lacked the ability to enforce the world-wide taxation against Chinese tax residents during the past years. The upcoming automatic exchange of CRS information will enable the PRC tax authorities to obtain more information for them to enforce tax collection on the PRC residents’ offshore income.
Defa Case: Supreme Court Rules in Favor of Deemed Taxation in An Auction Sale
In April 2017, the Supreme People's Court (SPC) ruled that the tax bureau is authorized to levy business tax4 based on a deemed transactional price in an auction sale where the real property was transferred at an obviously low price. This is the SPC's first tax retrial case.
Facts
On 30 November 2004, a Chinese company named Guangzhou Defa Real Property Construction Ltd. ("Defa") entered into an agreement with a Chinese auction company to entrust the auction company to sell some real estates. Under the agreement, Defa estimated that the total value of these real estates would be HKD 530.77 million and instructed the auction company to set a guarantee payment of HKD 68 million. Any person who wanted to participate in the auction shall make the guarantee payment first.
On 19 December 2004, a Hong Kong company as the only participant purchased approximately 95% (measured at building area) of these real estates at the reserve price, i.e., HKD 130 million(approximately RMB 138.26 million). Based on this price, Defa then paid RMB 6.91 million in business tax and RMB 0.12 million in dike maintenance fee to the tax bureau.
In 2006, the tax bureau's audit department initiated an audit on this transaction. The tax bureau compared the transfer price in question with the market price of similar real estates and found that the price was lower than half of the market price. The tax bureau concluded that the transfer price was obviously low without a proper reason. In 2009, the tax audit department made a decision to tax the real estate transaction at a deemed price of RMB 311.68 million, for which the additional business tax and dike maintenance fee was RMB 8.67 million and RMB 0.16 respectively. In addition, the tax audit department decided to charge late payment surcharges totalling RMB 2.85 million.
Faced with these decisions, Defa initiated an administrative review but failed. Defa then brought the case to the court. After losing the first trial, second trial as well as the retrial at the Guangdong Provincial People's Court, Defa eventually applied to the SPC for retrial.
Issues and holdings
The SPC identified three key issues in this case:
Whether the transfer price in question is obviously low without a proper reason — The SPC held that the tax bureau should in principle respect a transfer price in a valid auction. However, a valid auction sale does not preclude the tax bureau from adjusting the price for tax purposes, especially when the state's tax revenue may suffer. In the present case, although the law does not deny the validity of an auction which has only one participant, the auction was conducted without adequate competition. Thus, considering the state's tax revenue interests, the tax bureau may adjust the tax basis in accordance with the law. Further, the SPCheld that the assessment of a tax basis as "obviously low without proper reason" involves a large degree of discretion and the court normally would respect the tax bureau's decision, unless such decision is obviously unreasonable or constitutes misuse of authority.
Whether the decision to levy tax is within the statute of limitation (SOL)— Although the tax law does not specify the SOL for cases where the tax bureau decides to re-adjust the tax basis after the taxpayer's tax settlement, the SPC held that the tax bureau should refer to the three-year SOL(which is for unpaid or underpaid taxes due to the tax bureau's mistake) in a situation where the taxpayer commits no fault. Given that Defa did not engage in any illegal acts, the three-year SOL should apply. Although the tax decision was issued in 2009, the tax bureau initiated the audit in 2006, which is within the three-year SOL. As such, the decision to levy tax is within the SOL.
Whether the tax bureau may charge late payment surcharges— The SPC pointed out that the Tax Administration and Collection Law (TCAL) only provides three situations where late payment surcharges would apply: (i) the taxpayer fails to pay tax within the prescribed period; (ii) the unpaid/underpaid tax is due to taxpayer's calculation mistake; and (iii) the taxpayer has committed tax evasion or export tax refund fraud, or refuses to pay tax by using violence or threating behaviour. Given that the tax bureau could not prove the underpaid tax in question was due to Defa's calculation mistakes or illegal acts, the SPC held that the law should be interpreted in favor of Defa by referring to Article 52 of the TCAL that no late payment surcharges shall be charged when the tax bureau is responsible for the underpaid tax. On this basis, the SPC held that the tax liability should be viewed as arising on the deemed taxation date and thus no late payment shall apply.
Observations
The SPC ruled partly in favor of the tax bureau (in terms of deemed taxation) and partly in favor of Defa (in terms of the late payment surcharges).
According to Article 35 of the TCAL, the tax bureau may tax on a deemed basis provided that the tax basis declared by a taxpayer is obviously low without a proper reason. A key reason why Defa lost the fight against deemed taxation is that Defa was unable to justify that the transfer price had a proper reason while the tax bureau presented strong arguments5. A lesson from the Defa Case is that each taxpayer must conduct a "proper reason" analysis when entering into a low-price transaction and keep necessary supporting documents to mitigate the deemed taxation risk.
In terms of late payment surcharges, taxpayers would welcome that the SPC held that the law should be interpreted in favor of taxpayers in the case of uncertainty. In practice, we have seen plenty of tax disputes arising from uncertainties in the tax law. In the light of the Defa Case, taxpayers should be confident to defend their own tax interests in similar cases.
Note
Administrative Measures on Due Diligence of Tax related Information of Non-resident Financial Accounts, SAT, MOF, CBRC, CSRC and CIRC Bulletin [2017] No. 14, dated 9 May 2017, effective as of 1 July 2017.
See http://www.oecd.org/tax/automatic-exchange/international-framework-for-the-crs/.
China has committed to conduct first exchange of CRS information in 2018.
Business tax on transfer of real estate has been replaced by VAT from 1 May 2016.
The tax bureau argued that the price did not have a proper reason because (i) the auction only had one participant due to the high guarantee payment requirement, and (ii) the low reserve price, which only accounted for 20% of the estimate value, did not confirm with the normal practice in auction business.
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