Tax, tech rules 'test' US-China relations
Updated: 2015-02-06 11:28
By Paul Welitzkin in New York(China Daily USA)
Moves by China involving taxes and regulations for technology companies doing business in the mainland will probably add another layer of complexity to the relationship between China and the US, according to a former US diplomat.
Last week rules requiring audits and source code identification were issued in Beijing aimed at technology companies that sell equipment to Chinese banks. That action helped to prompt a letter from trade groups representing US businesses in China to US officials including Secretary of State John Kerry, requesting they push the Chinese government to reverse the new policies.
On Thursday, the New York Times reported that Chinese officials plan to target multinational companies that are suspected of avoiding taxes.
Christopher Cloutier, a partner in the King & Spalding law firm's international trade practice in Washington and a former member of the US embassy staff in China, said Washington - recognizing the complexity of the Beijing relationship - has to walk a fine line on these issues.
He said the US government should raise the concerns of foreign companies doing business in China in a way that is not attributable to any particular company so that one company isn't seen as a troublemaker. The US should then work with the Chinese government to suggest refinements to specific legal and administrative procedures.
"There's also the possibility of WTO (World Trade Organization) litigation, but I don't think we're there yet. I also think that as Chinese companies continue to expand their operations overseas; people will increasingly see that the impartial application of laws everywhere is important for Chinese interests," Cloutier said in an email.
The tax crackdown isn't really new since last December Chinese tax authorities pledged to step up supervision of multinational companies to battle tax avoidance. Zhang Zhiyong, deputy director of the State Administration of Taxation, said then that China would comprehensively monitor the profit levels of foreign companies to make sure there is no "base erosion and profit shifting."
"The focus right now is multinationals paying their fair share of taxes," Howard Yu, a corporate tax partner at PricewaterhouseCoopers in Beijing said in the Times.
Cloutier said multinationals can be tempting targets for several reasons. "There is at least the potential that they could be engaging in tax avoidance by keeping money overseas. They tend to have good name recognition and thus make better headlines and their ties to officials tend to be weaker," he said.
As for the technology rules, Cloutier said it appears that the Chinese authorities are primarily interested in being able to better monitor the activities of foreign businesses operating in China."There is also the possibility that the actions are intended to signal displeasure to Washington and Brussels about efforts to limit sales of Chinese high-tech products made by companies like Huawei and ZTE," he said.