In the digital era of the 21st century, the rise of the Internet and Big Data has addressed challenges in traditional tax collection and administration, resulting in an enhanced efficiency in tax inspection processes. Recognising its transformative potential, the Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued the ‘Opinions on Further Deepening the Reform of Tax Collection and Administration’ on 24 March 2021.
According to the proposal, by 2023, the tax law enforcement system should undergo a transition from adopting empirical law enforcement methods to using scientific and precise methodologies. Simultaneously, the tax supervision system should shift from relying on account and invoice management to a data-driven tax administration. To facilitate these objectives, the Chinese State Tax Administration (STA) has been upgrading the existing tax online filing and management system, transitioning from Golden III to Golden IV.
The Golden IV tax system underwent a pilot run in ten cities, starting in early 2023 and is scheduled for full implementation in 2024. This deployment promises a heightened precision in tax inspection procedures through increased data transparency facilitated by the Golden IV tax system.
The Golden IV tax system will have the following impact on tax management:
1. Establishment of a national unified e-invoice service platform
By implementing a national unified e-invoice service platform, tax authorities will be able to collect all VAT invoices and other transaction vouchers with invoice attributes. This comprehensive tracking of a taxpayer’s business transactions enables the authorities to identify hidden transactions from both upstream and downstream perspectives.
2. Development of an intelligent taxation system
The Golden IV tax system has the capability to automatically collect financial and tax information. It can analyse tax filings reported by taxpayers across different periods and tax categories, comparing the data with similar-sized taxpayers in the same industry. This enables tax authorities to accurately identify abnormal tax activities by taxpayers and enhances the efficiency of tax collection and administration.
3. Information sharing across different authorities
Through the information collection process, the Golden IV tax system facilitates information sharing, collaboration, and governance with various authorities such as banks, customs, market regulation, police, and payment platforms. This enhances the transparency of data reported by taxpayers to different authorities, allowing tax authorities to intelligently identify potential tax issues, particularly in e-commerce and import/export businesses.
Based on our experience, tax authorities in the pilot cities will fully leverage the tax information collected by the Golden IV tax system for the management of annual CIT (Corporate Income Tax) filing for the fiscal year 2022. Later this year, some taxpayers may receive tax notices regarding the risks identified by the Golden IV tax system.
How we can help
Our comprehensive suite of services is designed to assist clients in effectively resolving tax disputes. Here are some of the key services we offer:
Tax health check – We conduct a systematic and integrated review of tax filings to identify potential tax risks before year-end closing. Our team provides valuable insights and recommendations on how to mitigate these risks, ensuring compliance with tax regulations and minimising potential disputes.
Tax dispute resolution – Our experienced professionals are adept at assisting clients in defending their tax positions and resolving tax disputes.
China Updates
Accounting and Taxation
- Under the Weighted Deduction Policy, ‘integrated circuit enterprises’ involved in the design, production, closed beta testing, equipment, and materials of integrated circuits, are eligible for an additional 15% deduction of the deductible input tax from the VAT payable in the current period from 1 January 2023 to 31 December 2027. Integrated circuit enterprises eligible for the Weighted Deduction Policy will be subject to administration based on a specified list. The Ministry of Industry and Information Technology, together with the National Development and Reform Commission, the Ministry of Finance, the State Taxation Administration and other authorities, will establish the applicable conditions, administration methods and the list of eligible enterprises.
Human Resources
- The Shanghai government issued a notice clarifying that flexible employees from other provinces and cities, who are working in Shanghai and aged between 16 and 60 for men, and 55 for women, can register with the labour bureau starting from 1 May 2023, and pay their basic pension and medical insurance on a monthly basis. The registration process at the labour bureau follows a personal commitment system and offers integrated processing. It can be completed online or at social insurance agencies, public employment service agencies, or street/country (town) affairs service centers.
Corporate Governance
- On 19 May 2023, the People’s Bank of China and the State Administration of Foreign Exchange announced pilot projects in Beijing, Guangdong, and Shenzhen to optimise and upgrade the policy of centralised operation and management of cross-border funds in local and foreign currencies for multinational corporations.
Key points of the pilot projects include:
- Increased freedom of cross-border fund operations.
- Support for multinational corporations to conduct cross-border fund centralised operation business in RMB.
- Simplified filing processes and requirements for materials related to fund utilisation.
