China takes a big step towards international co-operation on tax administration

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Matthew Mui, National Tax Policy Services, PwC China  

Matthew Mui is Partner at National Tax Policy Services, PwC China.

On August 27, 2013, China signed the Convention on Mutual Administrative Assistance in Tax Matters (the Convention). Signing of the Convention enables China to join the biggest network of international co-operation on tax administration in the world.1 It is a milestone in China's efforts to strengthen co-operation with the international tax community. It will also have a significant impact on China's domestic environment for international tax administration.

I. Background

The Convention was developed jointly by the Organisation for Economic Co-operation and Development (OECD) and the Council of Europe and opened for signature by the member states of both organisations on January 25, 1988. After the 2008 financial crisis, the international community committed to putting in more effort to improve international co-operation on tax. The Convention was an ideal instrument for this purpose. Under a request from the G20, the OECD and the Council of Europe developed a Protocol amending the Convention to bring it in line with the international standard on exchange of information (EoI) and to open it up to all countries. After China signed the Convention it now has 56 signatories, including all G20 member states.

II. Features of the Convention
A. Wider scope of co-operation

The Convention provides for all possible forms of administrative co-operation between states in the assessment and collection of all categories of taxes, which include:

• E0I (including E0I on request, automatic E0I, spontaneous E0I, simultaneous tax examination and tax examination abroad)

• assistance in recovery (including recovery of tax claim and measures of conservancy)

• service of documents.


This is broader than the scope of co-operation in most existing bilateral double taxation agreements (DTAs) and tax information exchange agreements (TIEAs).

B. Flexibility for reservations

The Convention provides flexibility for parties to make reservations regarding the taxes covered (e.g. local taxes) and the type of assistance to be provided (e.g. assistance in collection and service of documents). Parties have the flexibility to make reservations either at the time of signature or when depositing the instrument of ratification. States that have made reservations are also allowed to withdraw the reservations at a later stage.

C. Co-ordinating body to facilitate implementation

A co-ordinating body composed of representatives from each of the parties monitors the implementation of the Convention. The co-ordinating body furnishes opinions on the interpretation of the Convention. It also acts as a forum for the study of new methods and procedures to increase international cooperation on tax.

III. China's commitment to international co-operation on tax administration

Under a more global and interconnected economy, a complex mutual assistance network for tax administration is essential for all the jurisdictions. It provides a platform for all to join efforts in attacking tax avoidance and evasion. China has been participating in the international co-operation on tax administration at a full fledge, e.g. playing a leading role in the Global Forum on Transparency and Exchange of Information for Tax Purposes as a Vice-Chair of its Steering Group, working together with the OECD's Committee on Fiscal Affairs on the Base Erosion and Profit Shifting (BEPS) project, and sharing tax information on international tax avoidance with other jurisdictions in the Joint International Tax Shelter Information Centre (JITSIC) etc. China's signing of the Convention reflects its determination to reinforce co-operation in tax administration with other countries.

IV. Expected SAT actions

Signing is the first step in the commitment to this Convention. It is believed that China's State Administration of Taxation (SAT) will take further steps to prepare for the implementation of the Convention. Steps may include the following:

• Decide whether or not to make reservations. China did not make reservations at the time of signing and is expected to decide if any reservations will be made in the following months before depositing the instrument of ratification. It still remains a question whether or not China will accept all forms of assistance.

• Devote more resources to make all forms of EoI more efficient. EoI has received increasing attention in recent years. There have been a lot of reported cases which are supported by evidence collected from foreign tax authorities under the EoI mechanism.

• Provide domestic guidelines for new forms of assistance, e.g. simultaneous tax examination and tax examination abroad.


Generally, it will take some time for China to be fully prepared to provide all forms of assistance (including legislative changes) and understand how to utilise this Convention in its interest to the greatest extent. As a result, China may make some reservations and accept certain forms of assistance at the initial stage.

Following the signing, the Convention will be ratified by the National People's Congress, China's legislative body. This may take several months for all diplomatic procedures to be completed. More progress updates are expected in due course.

V. The take away

International co-operation to improve tax transparency and counter tax avoidance and evasion are key concerns of many tax authorities around the world. China is no exception. Signing the Convention provides China with one more channel to this end by adopting bilateral and multilateral cross-border tax administrative actions under the Convention. Multinational companies operating in China need to be aware of these changes and the potential impact on tax compliance and prepare themselves for the growing challenges in the future tax administrative environment.

Matthew Mui is Partner at National Tax Policy Services, PwC China. He can be contacted on

Reprinted with the permission of PricewaterhouseCoopers Consultants (Shenzhen) Ltd, a China incorporated entity. Copyright 2013 PricewaterhouseCoopers Consultants (Shenzhen) Ltd. All rights reserved. The information in this article, which was assembled on August 27, 2013 and based on the laws enforceable and information available at that time, is of a general nature only and readers should obtain advice specific to their circumstances from their professional advisors.  


1 Full list of signatories to the Convention is available on the OECD website.

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