Newspaper article International New York Times

China Moves to Enforce Taxation of Foreign Firms ; Agency's Plan Is Latest in Series of Crackdowns on Western Companies

Newspaper article International New York Times

China Moves to Enforce Taxation of Foreign Firms ; Agency's Plan Is Latest in Series of Crackdowns on Western Companies

Article excerpt

The plan to step up collections came a day after President Obama announced his proposal of a 19 percent tax on the earnings of foreign multinationals.

China's tax officials plan to step up efforts to collect taxes from multinational corporations, the latest in a series of moves against mostly Western companies in the past year that have included police raids on the headquarters of their China operations and heavy fines under the country's antimonopoly law.

The State Administration of Taxation said that it would be looking in detail at how companies move money and allocate costs among their Chinese operations and their overseas businesses. Although such a review could also be applied to the many Chinese businesses that have set up holding companies in the Cayman Islands and elsewhere to avoid taxation, accountants said the main target of the latest initiative appeared to be foreign-owned firms.

"The focus right now is multinationals paying their fair share of taxes," said Howard Yu, a corporate tax partner at PricewaterhouseCoopers in Beijing. He added that the Beijing office of the national tax agency had set up an international division with an emphasis on auditing multinationals.

The tax agency statement came a day after President Obama proposed as part of his budget a 19 percent tax on future foreign earnings of American multinationals. But China's stance relies more on the enhanced collection of taxes under existing laws, as opposed to Mr. Obama's proposal to change the tax code itself, said Paul Gillis, an accounting professor at Peking University's Guanghua School of Management.

The tax agency announced its plans in a statement posted on its website Tuesday night; the statement was reported by state news media outlets in identical or nearly identical articles Wednesday. China Daily, a state-run newspaper, included a warning, ascribed to an unidentified "expert in the field," that "multinationals, especially small, foreign companies, should pay extremely high attention to their regulation compliance, as failure to do so would lead to huge losses."

China's focus on international taxation comes after the country became a net exporter of investment last year, by some measures. Christopher Xing, a China tax partner in the Hong Kong office of KPMG, said the State Administration of Taxation was likely to scrutinize some of the Chinese companies setting up operations overseas.

"China is also concerned about Chinese multinationals engaged in unfair practices," he said.

The State Administration of Taxation said it was seeking ways to share more information with foreign tax authorities to help figure out where the value of any good was created so that it could be taxed there. …

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