China joins global effort to combat tax evasion (2)

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China joins global effort to combat tax evasion (2)

(Xinhua) 09:41, August 28, 2013

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By joining the convention, Chinese tax authorities will be able to gain access to the spontaneous exchange of information, simultaneous tax examinations and assistance in tax collection.

"It is a very important sign that the Chinese tax authorities are getting more comfortable with the tax standards practiced in Europe and the US. And the convention can only work when all major economic powers join," said Erik Stroeve, a tax partner at audit and accounting firm Mazars.

China will benefit from the convention as it may lead to tax collections that were previously not within the reach of the Chinese tax authorities, Stroeve said.

It will also force multinational corporations in China to be more prudent and serious about their tax structures, and it will make it difficult for foreign companies to hide or shift certain profits elsewhere to avoid taxes, he added.

China has stepped up the effort at home to fight against illegal capital outflow, which is closely linked with cross-border tax avoidance and evasion.

According to the US research and advocacy group Global Financial Integrity, China saw a $3.79 trillion illegal capital outflow between 2000 and 2011. Of the roughly $2.83 trillion that flowed illicitly out of China from 2005-11, a total of $595.8 billion wound up as cash deposits or financial assets — such as stocks, bonds, mutual funds, and derivatives — in tax havens, according to the research.

"China's accession to the convention would increase the efficiency of Chinese tax authorities in combating potential tax avoidance and evasion by foreigners and foreign companies," said Steven Zhang, managing director at Fund Tax Services LLC in New York.

Experts said that joining the convention will also bring new challenges for China as its national taxation system still needs improvement and the country lacks practical experience in international tax cooperation.

"One potential challenge for China is how to acquire valuable tax information from other countries and how to assess the information and turn it into something valuable for tax authorities," Stroveve at Mazars said.