Will your Chinese affiliate be subject to certain tax authority surveys and audits in 2012?

Tax Controversy & Dispute Resolution ()

Reports have indicated that the growth in China’s fiscal revenue for the first quarter of 2012 was down sharply from the same period in 2011. A less robust economic climate likely motivated China’s tax and finance authorities to be more proactive in collecting, monitoring, and analysing key taxpayer information. As a result, the Chinese tax authorities appear to have bolstered their efforts to conduct tax audits, inspections, and investigations. In practice, these activities are becoming increasingly sophisticated and well coordinated across the country. A strengthening of the tax administration system has occurred in the areas of leadership, sharing of resources, organisation, and cooperation between governmental departments.

Recent announcements from China’s Ministry of Finance (MoF) and State Administration of Taxation (SAT) are further evidence of this trend. Specifically, the MoF and SAT have announced their respective audit, inspection, and survey work plans for 2012. This Alert describes some of the key points and implications of these four announcements.