Deloitte China Tax Conference National Polling Reveals
HONG KONG, Jan. 16 /Xinhua-PRNewswire/ -- According to a poll by Deloitte of over 800 senior finance & tax executives of FIE and Chinese companies in Hong Kong and Mainland China, the major challenges for companies in the coming year are cited as coming to grips with regulatory changes in the tax regime, growing compliance complexity and the tightening of enforcement by the tax authorities as well as managing tax risk.
The national poll identified the key challenges, risks and hot issues in the area of tax for company executives. It was conducted during the Deloitte China Tax Conference held over a period of four weeks during October and November 2006 in eight cities including Beijing, Dalian, Shanghai, Suzhou, Guangzhou, Hong Kong, Dongguan and Shenzhen. The Deloitte China Tax Conference is the first of its kind in China. It addressed key tax policy development and provided practical solutions to companies on how to mitigate tax risks while maximizing tax planning opportunities.
In managing their tax risk, the respondents felt that the biggest challenge comes from corporate income tax (37%) followed by turnover tax (28%). Over half (59%) of senior executives surveyed considered establishing internal tax control system as the most effective way to manage their tax risk. One-fifth (21%) of respondents will seek help from external tax advisors while another one-fifth (19%) considered the key to be maintaining a good relationship with the tax authorities.
On the regulatory front, the poll also tried to get a take of the respondents' views on various tax policies related to corporate income tax, M&A and transfer pricing. The unified corporate income tax reform is hailed as promoting a level playing field and simplifying the tax regime. However, a majority of the respondents felt that the proposed unified tax rate of 25% will have a negative impact on foreign investments (73%) but a positive impact on domestic companies (63%).
Alan Tsoi, Deloitte China Tax Conference Chair and Asia Pacific and China M&A Tax Leader of Deloitte, said, "The upcoming enterprise tax reform is viewed by most domestic companies to be favorable because it places them on an equal footing vis-a-vis their foreign counterparts who may not hold the same view as it will increase their tax costs. Some respondents even felt that the unified tax rate may lead to a drastic reduction in foreign capital inflow. However, there is no indication that it will dampen foreign investors' appetite in the growing Chinese market as there are factors other than tax that attract foreign investment."
The soon to be issued Transfer Pricing Contemporaneous Documentation Rules require companies to prepare and submit documentation attesting the arm's length principle is adhered to in related party transactions. A majority of the respondents (79%) felt that the rules will have some to significant impact on their businesses.
Mr Tsoi said, "Many companies expect that their compliance burden will be heavier as a result of the upcoming documentation requirement. Companies should consider how to cope with the requirements in advance if no such documentation has been prepared before or perform updates on their documentation as failure to do so may trigger an investigation by the tax authorities."
The poll showed that more than half of the respondents (53%) felt that the series of M&A measures recently introduced have some to significant impact upon their business. However, investors are generally undisturbed by the latest regulations on using special purpose vehicles and the anti-monopoly measures.
"The consensus is that China's M&A market will continue to flourish with at least a couple of years of growth expected in view of the rising earnings and share prices of companies, making it easier for finance purchases. However, it is important for the tax authorities to continue their efforts to increase the level of predictability and transparency of the related tax rules as China moves to become the largest tax revenue country in the world," said Mr Tsoi.
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We are one of the leading professional services providers in the Chinese Mainland, Hong Kong SAR and Macau SAR. We have 6,000 people in ten offices including Beijing, Dalian, Guangzhou, Hong Kong, Macau, Nanjing, Shanghai, Shenzhen, Suzhou and Tianjin.
As early as 1917, we opened an office in Shanghai. Backed by our global network, we deliver a full range of audit, tax, consulting and financial advisory services to national, multinational and growth enterprise clients in China.
We have considerable experience in China and have been a significant contributor to the development of China's accounting standards, taxation system and local professional accountants. We also provide services to around one-third of all companies listed on the Stock Exchange of Hong Kong.
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