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Q:
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What is the special tax adjustment?
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A:
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Special tax adjustment, commonly known as "anti-tax avoidance", is a legal term in the enterprise income tax law. In accordance with clause 41 of PRC Enterprise Income Tax Law, tax authority has the right to adjust the figure based on rational measures if an enterprise’s business activities with its related parties are not conducted within the principle of arm’s length and therefore its taxable income or its related party’s taxable income is decreased.
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Q:
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What are the processes of the investigation?
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In line with the Measures for Administration of Adjustments under Special Tax Investigation and Mutual Consultation Procedures (Announcement No. 6 [2017] of the State Administration of Taxation) (hereinafter referred to as ‘Announcement No. 6’), a tax authority shall conduct special tax investigations according to the statutory powers and procedures. In actual practice, investigations generally include tax authorities collecting evidence, analysing and evaluating related party transactions, drafting adjustment plans, negotiating with enterprises, determining adjustment plans, sending adjustment notices to enterprises, and paying taxes and interest.
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How long does the investigation usually last?
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At present, there is no clear requirement on the time limit for the conclusion of the investigation. The length of the investigation duration is related to factors such as the complexity of the case, how cooperative the enterprises are, and how great the differences are between tax authority and enterprises. In actual work, as most of the respondents are multinational companies with complex organizational structures, multiple types of transactions, and large amounts of money, the cases are often complicated and the investigation is difficult, so the general duration is normally more than one year.
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Q:
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Once the case is filed for investigation, is there any possibility to cancel the investigation?
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There is no precedent to cancel the anti-tax avoidance investigation after it is initiated yet in Beijing. According to Announcement No. 6, after investigation, tax authorities will make special tax investigation conclusions if they do not find that the company has special tax adjustment problems, and if they find that the company has special tax adjustment problems, they will implement the adjustment.
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Q:
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Can (enterprises) postpone provision of materials?
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The enterprises shall provide relevant materials within the time limit agreed by the tax authority. If the materials cannot be provided on time under special circumstances, a written extension application may be submitted to the tax authority, and the provision may be postponed upon approval.
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Q:
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Can (enterprises) not provide the materials of foreign companies required by tax authority in the investigation?
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A:
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According to Announcement 6, while conducting special tax investigations, tax authorities may require the enterprises under investigation and their related parties, or other enterprises involved in the investigation to provide relevant information. If the tax authority believes that the foreign company information is relevant to the investigation, the company should assist with the investigation and provide relevant information.
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FAQ
