CHINA’S vow to increase tax scrutiny of foreign companies has sent firms rushing to tax advisors ahead of the implementation yesterday of new rules designed to rein in cross-border tax avoidance.

    Tax professionals and business lobbies alike have welcomed the move as an attempt to bring China’s tax regime more in line with international standards.

    But it has also caused concern that authorities could use the policy, which came into effect yesterday, as a political tool to put the pinch on foreign companies.

    “We’ve definitely been getting a lot of questions from clients on how to avoid being investigated for anti-avoidance measures,” said Roberta Chang, a Shanghai-based tax lawyer at Hogan Lovells.

    The measures, an elaboration on China’s existing “general anti-avoidance rule” or GAAR framework, have more companies taking a hard look at how they structure their businesses.

    Andrew Choy, Greater China International Tax Services Leader at Ernst & Young, said the GAAR rules are a signal that companies need to pay attention to tax planning.

    “In general, people will be more conservative,” Choy said.

    Chinese regulators hit Microsoft Corp. with about US$140 million in back taxes last November, an early case of what could be a wave of “targeted actions” to stop profits going overseas, according to officials at China’s State Administration of Taxation.

    With a slowing economy likely to reduce 2015 fiscal revenue growth to a three-decade low of just 1 percent, according to a Deutsche Bank report, it makes sense for China to try to boost its coffers.

    Tax specialists say companies need to be aware that China’s tax regime is evolving, albeit as part of a global trend to curb tax avoidance.

    “Compared to the United States or the United Kingdom, China’s tax rules are still simpler. But China doesn’t want to be seen as an undeveloped country with tax rules. It wants to catch up to other international players,” Chang, of Hogan Lovells, said.

    (SD-Agencies)