China's Uncertain Tax Positions

Donald Compton of Pricewaterhouse Coopers LLP just had published a nice introduction to some of the tax issues likely to confront multinational companies doing business in China. The article is entitled, "China: Determining Uncertain Tax Positions In China," [free subscription may be required] and its focus is on what such companies need to do to comply with Financial Accounting Standards Board Interpretation No. 48.

The introduction to the article nicely summarizes the article itself:

By now many multinational companies have begun the process of addressing how Financial Accounting Standards Board Interpretation No. 48 ("FIN 48") will apply to their global business. The challenge in understanding the FIN 48 implications for tax planning and local country compliance issues in foreign jurisdictions will be significant. FIN 48 requires companies to ascertain, evaluate, and conclude on discrete tax risks. Companies must not only account for the interest and penalties on these conclusions, but must also adhere to a new disclosure regime.
Companies may not have the wherewithal to fully appreciate the implications of their tax posture due to many factors, including lack of knowledge, time constraints, resource constraints, quality of the past compliance filings, and insufficient mechanisms to gather data. Many issues, including documentation, transfer pricing, arbitrary enforcement and inconsistent interpretation by regulators, are common in many jurisdictions, although each jurisdiction may have its own particular twist.

For companies operating in China, the tax planning environment creates another level of complex Uncertain Tax Positions ("UTPs") analysis. This complexity arises because many companies have negotiated at the provincial and local levels to reduce the national statutory rate, plus there are numerous local incentive regimes. This article provides the author's perspective on UTPs in China and suggests some areas that companies currently or potentially operating in China should consider.

Taxes are a necessary evil, which makes staying current on them a necessary evil as well.

Comments

Hi Dan, late again: slow or none connection in the Italian countryside. You either have it beautiful and ADSL-free or polluted and ADSL-gun-ho! I'll be back on fast internet speed on Sunday. THE LINK: www.ecls.eu The only unfortunate thing is that the participants list is full. It will last 2 days though, so if she is on her way through Hamburg I would be very glad to meet up with her and update her on the papers and outcomes of the conference. You know what? I'll try and see if there are more spots in it, just in case someone fell out of the list in these very days. ok? ttyl

Posted by: Anonymous | August 23, 2007 2:35 PM

great, forgot to say who I was in the previous post about the conference in Hamburg. MORE: could you check out the faculty of people that will be speaking and chairing and tell me if you are familiar with them? First person speaking will be: CUI Jianyuan, from the Tsinghua Daxue, Law Faculty.

Posted by: Riccardo | August 23, 2007 2:37 PM

Hello there,

I just spotted this article linking to own blog post and was a little confused. The thrust of my post was that taxation is not in fact a necessary evil yet it is linked to in a sentence that says the opposite. Was this a toung in cheek 'look how stupid people who think otherwise are' joke, or did you misunderstand me or have I misunderstood you? Or perhaps you are taking a broader definition of taxation than I and including road tax and the like?

Many thanks

Posted by: Simon Clark | September 8, 2007 8:40 PM

Riccardo,

Sorry, did not notice your comment until now and now it is too late.

Posted by: China Law Blog | September 8, 2007 8:55 PM

Simon Clark,

I linked to your post simply becuase it dealt with the issue as to whether taxes are necessary.