Belt Road Tax Regulations
The Belt and Road Initiative (BRI) which is also defined as One Belt One Road (OBOR) is one of the most ambitious and relevant projects in both economic and political terms which is promoted by Chinese president Xi Jinping. The project finalised the creation of vast economic areas constituted by +70 countries that are geographically placed on different corridors. The main objective is to improve the economic and commercial cooperation and relations. This will intensify international trades and provide greater economic and development stimulus to all the countries involved. To facilitate the achievement of these objectives a number of circulars and regulations have been issued with specific focus on tax and finance.
In April 2017 the State Administration of Taxation (SAT) issued the document no. 42 (2017) “Circular on further improving tax services for the Belt and Road Initiative”. This was addressed to local offices with the aim of concretely promoting the Belt and Road initiative and clarifying the role of taxation in the process of opening and investing Chinese companies abroad. The cardinal points of the circular are: Double Tax Agreements Optimise the implementation of tax treaties and bilateral double taxation agreements (DTAs) to create a favourable environment which protects Chinese companies which desire to invest abroad. At present, China has signed 102 double taxation agreements of which about 60 of those were signed with countries involved in the Belt and Road project. Among these there are some agreements that have been updated to make them more useful to the project such as the new DTA between China and Russia that reduces the withholding tax on royalties from 10% to 6% and on interest and dividends from 10% to 5%; Tax Authorities Dialogue Improve the dialogue between the State Administration of Taxation and the various local units that comprise it and between the State Administration of Taxation with the tax authorities of the countries involved; High Tech and West China Tax Benefits Efficiently implement domestic tax policies related to reimbursements and tax exemptions as well as the preferential tax policies guaranteed to companies operating in certain technological sectors and in certain areas of central-west China, to reduce the tax burden on participating Chinese companies so they can invest in projects and international cooperation; VAT Refunds Optimisation Streamline tax procedures for VAT reimbursements and other tax obligations to enable companies to fulfil their tax obligations quickly and efficiently; Gather more information on the tax systems in force for in the countries involved, creating ad hoc guides for the Chinese companies interested in considering cross-border investment projects; Reduced Duties Trade between those countries involved in the project are also encouraged by the progressive reduction of customs duties, applied by China, on several hundred product categories. During the last few years the Ministry of Finance has in fact issued several Circulars announcing the cut of customs duties with the aim, for many assets, to reset the rates within 3-5 years. One of the main tariff reductions was announced at the end of 2017 (Circular Ministry of Finance No. 25 (2017)) through which the duties applied in 187 articles were cut. Reduced temporary duties are also applied to many other product categories which further reduce the tax burden on imports. Outbound investments In June 2017 the Circular no. 24 (2017) of the Ministry of Finance clarified the guidelines and measures that must be undertaken by SOE’s (State owned companies/ companies controlled by the state) to manage investments abroad and the financial risks deriving from them. The Circular focuses on the financial management of state companies, involved in the acquisition of controlling interests in entities, located outside the territory of the People's Republic of China. This improves the management of financial investments, reduce the risks associated with these investments and improve their efficiency SOE’s must develop an appropriate management system that allows them to outline roles, functions and responsibilities as well as improve reporting, performance measurement, internal control and auditing activities. Eco-Sustainability Tax Benefits In order to promote sustainable development, the Ministry of the Environment was issued in May 2017 Circular 65 (2017) "The Belt and Road Ecological and Environmental Cooperation Plan". This defined some guidelines that encourage Chinese companies to strengthen their environmental management, facilize the trade of environmentally sustainable products and facilize the exchange of information on environmental matters. The idea of implementing eco-sustainable policies in 30-year projects show that China has developed a long-term strategic vision, a concept reinforced by the recent introduction of the Environmental Protection Tax which affects particularly polluting industries. Given the importance given of the project it is plausible to expect further measures in the coming years to stimulate Chinese companies to make investments abroad, to strengthen cooperation and relations between China and other countries and to create a regulatory environment that protects the operators involved.