The Auditing Bureau of the State Administration of Taxation (SAT) issued Shuizongjibianhan [2017] No. 29 (Circular 29) to provide the 2017 tax investigation plan (the Plan). Circular 29 is dated 13 February 2017 but it was only recently released to the public domain.

Highlights of the Plan include:

Value Added Tax (VAT)

• The SAT will select 30 VAT cases to investigate invoices issued without business substance or potential export tax frauds, to be jointly conducted by the SAT and the local tax authorities.
• The SAT will choose the following cases for local tax authorities’ investigation purposes:
  – 500 cases for export tax frauds in textile, garment, furniture, mobile phone and gold industries
  – 1,000 cases for VAT invoices (including import VAT invoices) in gold, products and refined oil industries
  – 720 cases for VAT invoices issued without business substance in the VAT pilot industries in construction, real estate, life-style services and transportation industries

Regional and industrial investigations:

• The SAT will select five integrated foreign trade service enterprises to gather information on possible tax fraud risks in the industry and provide guidance.
• Other target industries and regions include:
  – The medical care and pharmaceutical industries in Tibet and Anhui
  – The agricultural industry in south-west regions
  VAT invoices related to gold transactions in Guangxi and Guizhou
  – VAT invoices issued without business substance or tax fraud of newly established trading companies in Beijing
  – The SAT will choose 30 individual income tax and corporate income tax returns on share transfers and investment income for high-level executives and artists.

To prepare for the coming tax investigations, US multinational companies with Chinese operations in the industries and specified in Circular 29 should assess their current Chinese operations’ compliance risks and develop strategies and documentation to manage the potential tax exposure.

EY Global Tax Alert Library: www.ey.com/taxalerts