Responding to a recent The New York Times article (previously discussed here) and all the Chinese media outlets who copied their report without fact-checking it (hi there Phoenix News), China Daily pointed out this afternoon that China does not have the system of taxation which the NYT attributes to it.
In their headline, China Daily asks, “Will China tax citizens’ overseas income?”, but all the article gives us is proof of Betteridge’s Law of Headlines with Chinese characteristics: a newspaper article can ask a question in a headline without bothering to answer it at all in an article. The article walks a thin line between making snarky comments about the U.S. and pointing out the need for international cooperation on tax matters. but in the end it only says that China is seeking to prevent tax evasion and fight corruption, and says nothing concrete about expanding the Chinese tax base to citizens permanently resident abroad. Translation after the jump.
Will China tax citizens’ overseas income?
|日前外媒报道称，随着更多的中国公民和企业到海外发展，中国税务机关也紧随其后。中国正在逐步扩大课税基础，并有意将征税范围覆盖到公民的境外收入，外媒评论称此举有效法美国之嫌。事实上，中国目前还没有出台向公民境外收入征税的具体措施，但是随着全球化的深入，全球征税已经不是某国专利，各国要保障税收根基，都必须通过国际合作。||Earlier, a foreign media report stated that with the increase in Chinese citizens and enterprises going abroad, the Chinese tax authorities are also following along. China is gradually broadening its tax base, and is interested in including citizens’ overseas income in the scope of taxation, which the foreign media describe as an imitation of the United States. In reality, at present China does not have any concrete measures to tax citizens’ overseas income. However, with the deepening of globalisation, worldwide taxation is no longer the exclusive right of a certain country, and countries which want to protect their tax bases must do so through international cooperation.|
Worldwide taxation: how different countries see it
|应该在国内还是全球范围内征税，各国的观点和做法都有所差异。||On the question of whether a country should impose tax only within its borders or around the world, different countries have their own viewpoints and ways of doing things.|
|美国人说，人生有两件事不可避免：那就是税收和死亡。去年7月1日，美国宣布《海外账户纳税法案》（FATCA）正式生效。为了及时掌握美国公民的海外账户信息，防止美国公民和居民滥用离岸地偷逃税款，美国煞费苦心地在世界范围内开展着大追踪。||Americans say that in life only two things are unavoidable: taxes and death. On 1 July of last year, the U.S. announced that the Foreign Account Tax Compliance Act (FATCA) had officially come into effect. In order to obtain timely information about U.S. citizens’ overseas accounts, and prevent U.S. citizens and residents from abusing offshore loopholes to escape tax, the U.S. is going through great pains to undertake this global-scale pursuit.|
|而欧洲国家、日本、澳大利亚和加拿大则属于另一个阵营，这些国家在本国境内向公民课税，但是它们对大多数外派人员和海外子公司，则豁免了本国国内的所得税。||Meanwhile, European countries, Japan, Australia and Canada belong to another camp. These countries assess tax on citizens within the borders of those countries, but they do not tax most employees dispatched abroad nor foreign subsidiaries, instead exempting them from the domestic income tax.|
|事实表明，无论是在国内征税还是在全球征税，各国为了保障国家税收不受侵蚀，已经开始根据各自国情采取了各种动作。而且随着全球化程度日益加深，中国自然也要参与到其中。||The fact is, no matter whether a country collects tax at home or around the world, countries are seeking to protect their tax revenues against erosion, and have already begun to take various actions based on the conditions in their respective countries. Furthermore, along with the continually deepening level of globalisation, China naturally seeks to participate as well.|
China unveils new international tax avoidance rules
|目前，中国还没有出台向公民境外收入征税具体措施，但已经明确一般性的反避税办法。||At present, China has not introduced concrete measures regarding income taxation of overseas citizens, but it has clarified the general anti-avoidance rules.|
|据国家税务总局官网介绍，随着经济全球化的深入发展，越来越多的跨国企业通过全球一体化的经营模式和复杂的税收筹划规避纳税义务，造成对各国税基的侵蚀，引起国际社会高度关注。2014年11月16日，国家主席习近平在澳大利亚布里斯班举行的G20领导人第九次峰会第二阶段会议讨论世界经济抗风险能力议题时指出：“加强全球税收合作，打击国际逃避税，帮助发展中国家和低收入国家提高税收征管能力”。这是我国最高领导人首次在国际重大政治场合就税收问题发表重要意见。||According to the website of the State Administration of Taxation, following along with the deepening of economic globalisation, an increasing number of multinational corporations are using a globally-integrated business model and complex tax planning to avoid tax liability, causing tax base erosion in a number of countries and attracting the concern of the international community. On 16 November 2014, at the second session of the Ninth G20 Leadership Summit in Brisbane, Australia, President Xi Jinping, in discussing the global economy’s ability to bear risk, stated, “Strengthening global tax cooperation and attacking international tax avoidance will aid developing countries and low-income countries to improve their tax-collection ability.” This was the first time a national leader of our country had expressed an opinion on tax issues at a large-scale international political conference.|
|于是，2014年12月，国家税务总局发布《一般反避税管理办法（试行）》（下面简称《办法》），进一步规范和明确税务机关采取一般反避税措施的适用范围、判断标准、调整方法、工作程序、争议处理等相关问题。这一《办法》的制定和出台正是落实习近平主席指示，开展“打击国际逃避税”采取的一项有力措施。||Thereafter, in December 2014, the State Administration of Taxation issued the General Tax Anti-Avoidance Procedures (Trial Implementation), referred to below as “the Procedures”, to further standardise and elucidate the scope, criteria, methods of adjustment, procedures, dispute settlement, and other issues related to the general anti-avoidance measures employed by the tax authorities. The drafting and introduction of the Procedures is the implementation of President Xi Jinping’s instructions, and have introduced forceful measures to attack international tax evasion.|
|该《办法》进一步加强了税务机关对跨境税源的监控管理，规范了税务机关行政执法行为，表达了我国税务机关维护国家税收权益，对侵蚀我国税基和向境外转移利润的行为绝不姑息纵容的态度。||These Procedures have further strengthened the tax authorities’ oversight of cross-jurisdictional revenue, standardised the tax authorities’ enforcement of administrative law, and expressed the position of our country’s tax authorities on the protection of national taxation powers and absolute non-tolerance regarding tax base erosion and overseas profit-shifting activity.|
Protecting tax revenues requires international cooperation
|此外，据美国财政部官网，就在美国《海外账户纳税法案》正式生效前不久，中美两国就这一法案的实施达成一项初步协议。中国将把有关美国公民所有在华账户信息提交给美国国税局，而美国则会将中国公民在美国账户信息提供给中国政府。||Aside from this, according to the U.S. Treasury Department website, not long before the Foreign Account Tax Compliance Act came into effect, China and the U.S. reached a preliminary agreement regarding the implementation of the law. China will provide information on U.S. citizens’ accounts in China to the U.S. tax authorities, while the U.S. will provide information on Chinese citizens’ U.S. accounts to the Chinese government.|
|有专家称，中美之间的这种合作在很大程度上是互惠的，而且这对于目前正在大力反腐的中国政府来说，无形中是很大的一个协助。而这一合作在现在看来，不得不说是一个前瞻之举。||Experts state that this kind of cooperation between China and the U.S. is mutually beneficial at many levels, and for the Chinese government, which is now putting great efforts into fighting corruption, this has the potential to be of great help. For this kind of cooperation, it’s definitely a step forward.|
Pursuing corrupt officials abroad is not CBT
The last paragraph of the China Daily article comes to the real reason for China’s interest in FATCA: the alleged reciprocity on offer, in hopes that the data it acquires can be used to track and recover state assets misappropriated by corrupt officials and hidden overseas.
In an earlier post in August, we discussed China’s ongoing efforts to fight corruption: they are focusing on government officials who have moved large amounts of state assets overseas and sent their family members to live in countries which they deem less likely to deport or extradite them to China, often by taking advantage of investor visa programmes. The rate at which Chinese HNWIs apply for EB-5 visas, for example, is nearly one hundred times the average in the rest of the world, and still dozens of times greater than even its poorer Asian neighbours like India and Indonesia.
A programme of recovering misappropriated property — even one based on data exchanged for tax purposes — does not indicate any intent to expand the tax base to Chinese citizens permanently resident abroad; nor does a programme of enforcing taxes against people who remain tax resident under currently existing laws. Instead of expanding the tax base outwards, China seems to be focused on bring government officials’ families home from overseas, to deprive them of easy opportunities to siphon off more state assets. As stated in the report I translated in August:
|哪些人要填写这份“报告表”？各省份都将排查的覆盖面，定位在囊括乡镇、街道和企事业单位在内的所有国家工作人员，即所有“吃财政饭”的人员。例如浙江湖州市吴兴区教育局就要求，全区各学校、幼儿园在编教职工，局机关、直属事业单位全体工作人员，都要填表。也就是说，幼儿园教师也要上报配偶、子女国籍。||Which people have to fill in this report form? The provincial investigations cover all national employees, including those in town and village, subdistrict, and public enterprises and institutions — that is to say, all employees who “eat government rice”. For example, the Education Department of Wuxing District, Huzhou City in Zhejiang Province has demanded that all employees teaching at at any school or kindergarten, as well as all personnel of organisations under the Education Department, fill out the form. In other words, even kindergarten teachers have to report their spouse’s & children’s citizenship.|
|摸底排查后，各级组织人事部门还要跟“裸官”逐一“个人谈话”，让其在“接回家人”和“接受调岗”之间，作出“二选一”选择。选择接回家人的，还需填写《自愿放弃外国国籍、国(境)外永久居留权或长期居留许可承诺表》，注销外国国籍，并上交移居国家出具的注销手续凭证；拒绝接回家人的，则被调整出中组部规定的5类岗位。||Following the exploratory investigation, personnel departments at all levels will then have to conduct “individual discussions” with all “naked officials”, to give them a choice between either “bringing home family members” or “accepting reassignment”. They will also have to fill out a “Pledge to Voluntarily Renounce Foreign Citizenship and Foreign/Territorial Permanent Residence or Long Stay Permit”, cancel foreign citizenship, and submit a certificate issued by the country of emigration attesting to the cancellation; those who refuse to bring home their family members will be transferred out of five types of posts listed by the [Communist Party's] Organisation Department.|
Chinese CBT by stealth? No evidence for that either
So at this point I have not seen evidence that China is trying to implement a de jure system of citizenship-based taxation. Perhaps such a system could be created de facto by making it very difficult to declare tax non-residence; in fact, when pressed on his claims this is what the NYT journalist asserted is happening, according to a comment posted earlier by Charl:
But China has very strict rules that make it very hard for its citizens abroad to gain non-resident status. They need to be able to show that they have moved permanently overseas, acquired permanent residency abroad, have their main income or business abroad, have no plans ever to return to China and have their family abroad. China had paid little attention to overseas income before but is now paying more attention.
First, however, these rules really aren’t anywhere near strict enough to call it citizenship-based taxation or even the seed of CBT. If we were talking about the U.S. rather than China, nearly every Brocker would fulfill these rules for non-residence.
Furthermore, these rules dovetail with how jus sanguinis works under Chinese nationality law: if you have a permanent residence visa in a foreign country, and work and start a family there, then not only are you probably a non-tax resident of China, your children do not get Chinese citizenship at birth and so there is no possibility at all that they would be deemed tax resident in China. This largely prevents the problem of “accidental citizens” which has been at the root of the worst injustices in the U.S.’ system of citizenship-based taxation: the imposition of tax and fines on people who didn’t know they were U.S. citizens and never lived in the U.S. in the first place.
Certainly it’s no fun dealing with the Chinese bureaucrats who handle the residency determinations under these rules, but there’s no evidence that this problem is part of some deliberate attempt to implement CBT on the sly. Rather, it’s the same issue that one faces when dealing with unaccountable lower-level government-officials in any developing country — plus genuine bureaucratic unfamiliarity with how to handle the procedures for tax non-residence, since due to the non-enforcement in the past, very few people bothered with going through those procedures in the first place.