China joins world anti-tax fraud effort

Updated: 2013-08-27 10:49

By Zhang Yuwei in New York (China Daily)

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China will sign the tax assistance convention with the Organization for Economic Cooperation and Development (OECD) on Tuesday, becoming the last of the Group of 20 economies to join the major international tax convention.

Chinese tax chief Wang Jun is scheduled to sign the convention in Paris on Tuesday, and it will become effective after three full calendar months following the day of ratification. The convention - entitled Multilateral Convention on Mutual Administrative Assistance in Tax Matters - provides a framework for administrative cooperation between more than 50 developed and developing countries in assessing and collecting taxes, with a focus on preventing tax avoidance and evasion.

China's joining the group in ratifying the convention means the world's second-largest economy will participate "in global efforts to combat tax avoidance and evasion by cooperating with other states in the assessment and collection of taxes", according to OECD.

Once the convention is in force in respect to China, the Chinese tax authorities will be able to ask their counterparts from the signatory countries for use of their records and vice versa.

Steven Zhang, managing director at Fund Tax Services LLC in New York, said China's joining the group is "part of a global trend".

"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 Zhang.

Tax avoidance was also a priority set by global leaders, including the leaders from the G20 economies, to address the causes of the 2008 financial crisis and to help fight corruption - one of the major issues China's new leadership has shown resolve and confidence to tackle.

Tax evasion and avoidance will be one of the main topics under discussion at the G20 summit in St Petersburg on Sept 5-6.

"Governments worldwide are introducing legislation and standards to require taxpayers to provide greater transparency in their tax reporting and are stepping up cooperation in fighting tax avoidance across different jurisdictions," said Zhang.

"Mounting pressure from governments and regulators has put management of global tax risk at the forefront of business and investment decisions," he added.

Global Financial Integrity, a Washington-based non-profit research and advocacy organization, said the Chinese economy hemorrhaged $3.79 trillion in illicit financial outflows from 2000 through 2011. Of the roughly $2.83 trillion that flowed illicitly out of China from 2005 to 2011, they said, $595.8 billion wound up as cash deposits or financial assets - such as stocks, bonds, mutual funds, and derivatives -in tax havens.

Figures released by China's State Administration of Taxation last month showed that anti-tax evasion efforts by the Chinese government generated an additional income of some $5.7 billion last year, nearly 30 times the amount in 2008.

The convention was jointly developed by the OECD and the Council of Europe in 1988. In 2009, the agreement was updated to bring it into line with international standards on the exchange of information for tax purposes, and to open it for countries that were not members of the OECD or the Council of Europe to sign up for.

More than 50 countries have either become signatories or have stated their intention to do so since the amendment of the convention.

(China Daily USA 08/27/2013 page1)