Further standardization and refining the management of tax dedcution and tax exemptions


Date:  2015-04-20    Autor:  ECOIVS Ruide Marketing Team

On June 8, 2015, the StateAdministration of Taxation (,,SAT“) has published the Announcement on Promulgatingthe Administrative Measures for Tax Deduction or Exemption (,,Announcement No.43“)which came into force since August 1, 2015. The Administrative Measures for TaxDeduction or Exemption (for Trial Implementation) (Issued under Guo Shui Fa[2005] No.129)(„Circular [2005]129“) shall be repealed simultaneously.

Announcement No. 43provides the provisions of implementation on the tax deduction or exemption byway of approval or by way of archival filing. In order to reduce theadministration cost burden on taxpayer, Announcement No.43 is to further refinethe documentation filing, simplify procedure, and the tax deduction orexemption by way of archival filing are to take a one-time application. In themeanwhile, the tax authority change the way of tax administration andstrengthen supervision on on-going matters and subsequent management, enhancethe dynamic monitoring and response on the tax relief and risk management.

(A) What is tax exemption:

It is refers to a kind oftax incentive measures provided by the State to reduce or exempt the tax burdenof specific taxpayers or subjects of taxation, and is classified into threetypes, namely, the tax deduction or exemption respectively based on tax basis,tax rates and taxable amount. The export tax rebates and tax deduction orexemption handled by financial departments are excluded.  

(B) Classification of taxexemption:

The tax deduction or exemption is classifiedinto the tax deduction or exemption by way of approval and the tax deduction or

exemption by way ofarchival filing. The term "tax deduction or exemption by way ofapproval" refers to the item of tax deduction or exemption which shall besubject to the examination and approval of the tax authority. The term"tax deduction or exemption by way of archival filing" refers to theitem of tax deduction or exemption which is not subject to the examination andapproval of the tax authority.

(A) The tax deduction orexemption by way of approval:

A taxpayer who enjoys thetax deduction or exemption by way of approval shall submit relevant materialsand file an application within the term of tax deduction or exemption as prescribedby policies. Where an application for tax deduction or exemption complies withthe statutory requirements and standards, the tax authority shall make awritten decision on granting the approval for tax deduction or exemption withinthe prescribed time limit. In the case of disapproval for the tax deduction orexemption in accordance with the law, an explanation shall be given and therelevant taxpayer shall be informed of the right to apply for administrativereconsideration or file an administrative litigation in accordance with thelaw.

i. Any tax deduction orexemption item as applied for need not be subject to the examination andapproval of the tax authority in accordance with the law before implementation,the taxpayer concerned shall be informed of the non-acceptance in a timelymanner;

ii. If any application materialregarding tax deduction or exemption contains any mistake, the taxpayerconcerned shall be informed of such mistake and shall be allowed to correct it;

iii. if the applicationmaterials regarding tax deduction or exemption are not complete or fail to meetthe statutory format, the taxpayer shall be informed of it in a one-off manner;and

iv. if the applicationmaterials regarding tax deduction or exemption are complete and comply with thestatutory format, or the taxpayer concerned has submitted all the supplementaryor corrected tax deduction or exemption materials as required by the tax authority,the application thereof shall be accepted.

(B) The tax deduction orexemption by way of archival filing:

For the implementation oftax deduction or exemption by way of archival filing, tax authorities may, inaccordance with the principle of reducing the burden on taxpayers andfacilitating tax collection and administration, require taxpayers to attach oraffix materials to the tax returns for filing in the stage of application foraccess to tax deduction or exemption for the first time, or to submit theprepared materials for filing within other prescribed time limit after thedeclared payment period. Taxpayers concerned may keep enjoying the taxdeduction or exemption during the period when they meet the qualificationrequirements for the tax deduction or exemption, when the materials for filinghave been submitted and saved in a one-off manner and when the policies remainapplicable.

i. Relevantmaterials and file an application shall be submitted within the term of taxdeduction or exemption as prescribed by policies

ii. if there is any mistake inthe materials filed for tax deduction or exemption, the taxpayer concernedshall be informed of such mistake and shall be allowed to correct it;

iii. if the materials filed fortax deduction or exemption are not complete or fail to meet the statutoryformat, the taxpayer concerned shall be informed of it in a one-off manner; and

if the materials filed for tax deduction orexemption are complete and comply

i. with the statutory format,or the taxpayer concerned has submitted all the supplementary or corrected taxdeduction or exemption materials as required by the tax authority, the filingthereof shall be accepted.

A taxpayer may enjoy the treatment of tax deduction or exemption inaccordance with the law. However, where the taxpayer fails to enjoy the saidtreatment, which results in his overpayment of taxes, he may file anapplication for tax deduction or exemption within the time limit as prescribedin the Law on the Administration of Tax Levying to request the refund of theoverpaid tax amount. In accordance with repealed Circular [2005]129, a taxpayerthat fails to go through the archival filing process needed according to therelevant provisions may not be eligible for any tax deductions or exemptions. Thismeans that if a taxpayer forgot to apply for approval or filing tax deductionor exemption, there are remedial measures.

Our observations and suggestions

The positive facts broughtwith Announcement No.43 includes facilitate the archival filing proceduer withrefined provisions of documentation, extend the time limiation, reducing thenumbers of filing, and relax the restrications of remedial measures of ataxpayer forgot to apply for approval or filing tax deduction or exemption.

However, to simplify theaplication procedure is not to relax the admininstration of tax relief orreduce the liabilities of taxpayer who enjoys the tax deduction or exemption.On the contrary, the announcement is to further clarify the responsibilities oftaxpayer and also place higher demands of taxpayer. Besides the submission ofrelated documents and materials, the tax authority examines whether thetaxpayers‘ actual operating conditions are inline with the policies andregulations of tax deduction and exemptions by ways of provision ofverification material, field verification, and coordination and communicationwith relevant professional technical or economic appraisal department, ect.Where the taxpayer does not meet the conditions for tax deductions orexemption, or obtain tax relief by deception, or fail to report the changes ofconditions and circumstances to the tax authority on time, or enjoy the taxdeduction or exemptions without fulfilling the relevant procedures, the taxpreviously deducted or exempted shall be recovered and handled according torelevant provisions of the Law on the Administration of Tax Levying. Therefore,we suggest the taxpayer to do the following works:

(i)    To maintain strictstandards of the authenticity of submitted materials and the tax basis, nofictitious materials are allowed.

(ii)   To periodically examinewhether the conditions and circumstances are changed and whether it is in linewith the policies and regulations of tax reductions or exemptions, whether itis used for prescribed purpose according to the related laws and regulations;

(iii)  The certificates issued orverified by related departments or authorities which is required by taxauthority for the purposed of tax reductions or exemptions shall be effectiveand authentic;

(iv)  To keep the relatedmaterials meeting policy requirements for future reference, in case there issubsequent management from tax authority.

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