International norms may be used to check evasion, says official

The nation's top legislature has ratified an international tax convention that will, for the first time, facilitate multilateral information exchanges as a means of fighting evasion.

The ratification on Wednesday of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters came two years after China signed the convention in August 2013.

Developed by the Organization for Economic Cooperation and Development and the Council of Europe in 1988 and updated in 2010, the convention provides a comprehensive multilateral framework for the exchange of information and assistance in tax collection. It has become the most comprehensive multilateral instrument available for all forms of tax cooperation, with 70 countries having signed it as of March.

China has signed 100 bilateral tax treaties in an effort to combat tax evasion. But this convention is the nation's first multilateral tax treaty that will enable automatic information exchange.

"The ratification will help China's tax authorities in extending the scope and depth of international tax cooperation and improving administration of cross-border transactions. The convention can also benefit businesses by reducing compliance costs and leveling the playing field," Liao Tizhong, director-general of the international taxation department of the State Administration of Taxation, told China Daily.

He said the convention will come into force three months after the date of China's deposit of the instrument of ratification.

China's ratification means that most G20 members have approved the convention, with the exceptions of Brazil, Germany, Saudi Arabia and Turkey.

The convention will provide a multilateral legal framework to implement a new standard for automatic exchange of information endorsed by the G20, Liao said. China has made a commitment to implement the new standard before September 2018.

Andrew Choy, international tax service leader of Ernst & Young for greater China, said that as China is not an OECD member, the ratification showed China's willingness to adopt and commit to the same OECD standards in terms of international cooperation on tax matters.

"It is unclear at this stage the intensity the convention may bring in terms of cracking down on international tax evasion and avoidance. But one thing for sure is that under the convention, China has the most powerful weapon, which enables multilateral automatic exchange of information, simultaneous tax examinations and even international assistance in tax collection," Choy said.

He added that the tax administration would step up enforcement of tax provisions on all inbound and outbound transactions, so multinationals in China should conduct their tax matters in a more transparent manner.