China Clarifies the Offsetting of Overdue Taxes with Refundable Taxes

September 27, 2013 Posted by China Briefing Reading Time: 3 minutes

Sept. 27 – China’s State Administration of Taxation released the “Announcement on Issues Concerning the Offsetting of Overdue Taxes with Refundable Taxes (Announcement of SAT [2013] No. 54, hereinafter referred to as ‘Announcement’)” on September 16, which clarifies issues relating to the offsetting of overdue taxes with refundable taxes. Detailed information can be found below.

According to the Implementing Rules on the Administration of Tax Collection, where a taxpayer has both refundable taxes and overdue taxes, the relevant tax authorities may offset the refundable taxes and the interests thereof against the overdue taxes and refund the balance, if any, to the taxpayer.

Recently, there have been different opinions on whether the above-mentioned measure governing the offsetting of overdue taxes with refundable taxes belongs to the compulsory enforcement measures. With the view to fully and properly carry out the enforcement measures, issues relating to the offsetting of overdue taxes with refundable taxes have been clarified as follows:

China’s Tax Collection Law provides that where a taxpayer engaged in the production or business operations fails to pay or remit taxes within the prescribed time frame, the tax authorities shall order the taxpayer to pay the taxes within a fixed period of time. Where the taxpayer fails to pay the taxes within the prescribed time, the tax authorities may enforce the following compulsory enforcement measures:

Sending a written notification advising the bank or other financial institutions with which the taxpayer holds an account to withdraw funds from the taxpayer’s deposits; or
Seizing of, sealing up, and selling off of commodities and goods or other property of the taxpayer to the value equivalent to the amount of tax payable, and offsetting the proceeds therefrom against the amount payable.

The method of offsetting overdue taxes with refundable taxes is a tax settlement system used by the tax authorities to determine the tax liability of a taxpayer. It does not involve withholding taxes from the taxpayer’s deposits or other enforcement measures such as seizing, sealing up, auction or selling-off.

After offsetting the overdue taxes with refundable taxes, the remaining balance shall be refunded to the taxpayer. Where there are still taxes in arrears after the offsetting and no payment has been made within the prescribed time frame, the tax authorities will adopt the compulsory enforcement measures. As such, the measure that involves offsetting overdue taxes with refundable taxes does not fall under the administrative compulsory enforcement measures.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.

For further details or to contact the firm, please email asia@dezshira.com, visit www.dezshira.com, or download the company brochure.

You can stay up to date with the latest business and investment trends across Asia by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.

Related Reading

The China Tax Guide: Tax, Accounting and Audit (Sixth Edition)
This edition of the China Tax Guide, updated for 2013, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in China, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in China in order to effectively manage and strategically plan their China operations.

Value-Added Tax Reform
VAT reform is a confusing transition for many and introduces a number of additional questions, such as exactly what types of input VAT are now deductible. Confusion about the new laws may also allow opportunistic companies to charge higher prices and blame the increase on the tax reform. To add some clarity to the issue – and VAT in general – this issue of China Briefing takes a look at a number of VAT-related questions.