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China: Measures on Audits of High-Risk Taxpayers

(June 10, 2016) China’s State Administration of Taxation (SAT) issued a set of measures on May 19, 2016, to apply as of July 1, 2016, containing rules on tax audits of “high-risk taxpayers” and on the administration of tax audit cases. (Shiqi Ma, China (People’s Rep.): Rules on Tax Inspection and Administration of Information on Tax Risks Published, TAX NEWS SERVICE (May 25, 2016), International Bureau of Fiscal Documentation online subscription database; Shuiwu jicha anyuan guanli banfa (shixing) [Measures on Administration of Sources for Cases of Tax Audits (for Trial Implementation)] (Measures) (May 19, 2016), Shui Zong Fa [2016] No. 71, SAT website.)

The 43-article notice defines tax audit case sources, that is, the source material for cases of illegal violation of tax collection, as referring to the data, information, and clues related to suspected acts in violation of tax collection that are compiled through procedures such as collection, analysis, deliberation, and processing.  The violations concern various types of tax evasion (avoidance of making tax payments, evasion of recovery of taxes known to be owed, refusal to pay taxes), tax fraud, and false invoicing. (Measures, art. 3.)

Case source information includes:

  • taxpayer self-declared data and information and the tax data and information gathered by SAT authorities from tax registration, invoices, tax incentives, accreditation, export tax rebates, and corporate financial statements;
  • high risk taxpayers’ risk information discovered and advanced through the risk analysis and discernment work of the SAT’s risk management and other departments;
  • clues of illegal tax acts provided by documentation issued by higher-level party committee, government, and discipline inspection units and higher-level tax authorities;
  • clues of illegal tax acts provided by prosecutors or by persons entrusted with investigation of illegal tax activities;
  • clues to illegal tax acts provided by external public security, procuratorial, audit, and discipline inspection units as well as by the SAT supervisory internal audit and discipline inspection departments;
  • international tax intelligence information gathered in the course of specialized, automatic, or spontaneous intelligence exchanges;
  • tax audit data derived by the SAT from case clues and dispensation of punishment in the process of enforcing the law;
  • third-party information such as tax-related information shared by government departments and social organizations and SAT-collected publicly available information; and
  • other tax-related data, information, and clues to illegal tax activities.  (Id. art. 11.)

The Measures set forth nine categories into which the data will be divided, depending on the source providing the information.  (Id. art. 15.)   The categories include, for example, material from risk management and other departments, from higher-level SAT-mandated inspections, and from inspections ordered by the SAT authority concerned itself.  (Id.)

The Measures state that “the relevant tax authority is required to analyse the data and identify tax risks to determine whether a case is eligible for suspension, verification or immediate tax investigation.”  (Ma, supra.)  The authority’s findings are to be submitted to the head of the tax inspection unit of the relevant tax authority on a form devised for that purpose, the Case Source Material Disposition Results Feedback Form.  (Id.; Measures, art. 32 & Annex 7.)  The Measures provide for establishment of a system for feedback (fankui) and compiling of statistics on inspected and handled cases, to allow evaluation and improvement of the taxation administration.  (Ma, supra; Measures, arts. 31-38.)  Local-level tax bureaus are authorized to issue detailed rules for implementation of the Measures.  (Measures, art. 41.)

The rules set forth in the Measures are subject to the Law on the Protection of State Secrets, the Law of the PRC [People’s Republic of China] on Tax Collection and Administration and its detailed rules of implementation, State Tax Authority System Confidentiality Rules, Measures on Prosecution of Acts in Violation of Tax Collection, Measures on Administration of Investigations of Tax Audit Cases (for Trial Implementation), and so on.  (Id. art. 39; see, for example, the Law of the PRC on Tax Collection and Administration (Apr. 28, 2001, in force on May 1, 2001, as amended Apr. 24, 2015), China Securities Regulatory Commission website (in Chinese), partial bilingual text view available at China Law Info website (full access by subscription); Detailed Rules for the Implementation of the Law of the People’s Republic of China of the Administration of Tax Levy & Collection (Revised in 2012) (issued Sept. 7, 2002, in force on Oct. 15, 2002, as amended on Nov. 9, 2012), Ministry of Commerce of the PRC website (toggle character in red diamond to view Chinese text); & Law of the People’s Republic of China on Protection of State Secrets (adopted Sept. 5, 1988, as amended on Apr. 29, 2010), Daniel Arthur Laprès website, & Chinese text (issued Apr. 29, 2010, in force on Oct. 1, 2010), The Central People’s Government of the PRC website.)