Jake Laband

The State Administration of Taxation (SAT) recently requested that approximately 1,000 foreign and domestic companies provide a wide range of tax, financial, and accounting data, raising US-China Business Council (USCBC) member company concern about the intent and intrusiveness of the initiative. USCBC last week met with SAT to raise member concerns and seek clarification of key aspects of the request.

It began as a pilot project

The initiative apparently began as a pilot project several years ago, covering 45 domestic and foreign companies. SAT said the 1,000 companies now being targeted were chosen because they are among the largest foreign and domestic corporate taxpayers in China. Companies must provide tax, financial, and accounting information to SAT, preferably via SAT-provided software installed on company computers or by manually uploading relevant data to the regulator’s platform.

The submission deadline was originally set for the end of March—though many companies indicate the scope, scale and format of data necessitated internal coordination and in some cases approval from headquarters, leaving many companies unable to meet the initial deadline. Companies are also concerned about the scale of the information request, which extends to financial data beyond that necessary for tax reporting, what the data would be used for, as well as the push to install software on company systems.

In USCBC’s meeting, officials in SAT’s Large Business Taxation Department seemed surprised by the concerns raised and said the initiative is meant to modernize the tax reporting system by building a data model that will improve tax risk management, improve compliance, and ultimately reduce the cost of tax collection. The data will also be used for research on the changing workforce environment. SAT also noted that the Organization for Economic Co-operation and Development (OECD) and United States use similar models for analyzing large company tax reporting—though USCBC was unable to substantiate this claim.

What is being requested? Ask your local tax bureau

In response to the concern that the SAT data request is “vague” and beyond what is typically provided to tax authorities during the course of normal reporting, SAT replied that companies should talk to their local tax authorities, which have additional documents, including a list of all data required, prepared by SAT.

How is this data being collected?

The SAT notice outlined two methods for collecting data:

  1. Install software provided by the SAT to convert data to SAT’s desired format;
  2. If a company cannot or will not install software, it can upload the data manually.

SAT clarified during the meeting that software installation is not mandatory and recognized concerns about IT security. SAT made several points in defense of the software option:

  • The software can be installed on a computer independent of the company’s internal network. Data can be exported to this computer manually and then saved in the proper format on a disc or USB drive, which can be given to SAT. This information can only be decrypted by the SAT database system, to ensure confidentiality and prevent information disclosure.
  • The software was developed by SAT, and designed to be compatible with company IT systems. It can only access data made available by the company.
  • Although the software is only compatible with Windows operating systems, SAT claims it is compatible with most major accounting software.

SAT acknowledged the short timeline to begin compliance and encouraged companies to seek extensions from local tax authorities, if necessary. SAT also stated it hosted a nationwide training for local tax bureaus and companies in 2015, and that another training session was to take place this week at the Beijing Tax Bureau. Companies interested in training should contact their local tax bureau.

What’s next?

The SAT stated there are no plans to expand the current list beyond the 1,000 companies identified, as those participating will provide a sufficiently representative set of data for their purposes. USCBC will stay in touch with affected member companies to clarify ongoing concerns with compliance and take further steps as necessary to reflect those concerns to the tax and other authorities.

Posted by Jake Laband