In brief

  • China has updated its joint punishment system since its launch in 2014 against serious offenders in tax and customs.
  • Over thirty ministerial authorities have joined the forces to enhance cross-discipline punitive measures against serious tax / customs offenders.

In detail

China nails its colours to the mast in enforcing firmly joint punishment measures against serious tax and customs violation by the following high-powered legislative updates:

  • Thirty four ministerial bodies collectively endorsed the joint penalty memorandum in December 2016 to agree on joint punishment against serious tax offenders, and thirty three endorsed another memorandum in March 2017 against srious customs offenders.
  • State Administration for Taxation (SAT) updated its joint penalty regulations in April 2016 (Circular 24), to replace the last one issued in 2014 (Circular 41).

1. Tax joint punishment

(a) Scope of serious tax offence

The 2016 version ("Circular 24") has re-defined the scope of serious tax offences, which are set at a much lower basis than its previous version, and has added VAT invoice fabrication to its scope (see table below).

Notably, one can observe that the overall criteria are tightened, especially there is no criteria set for some serious offences, which has reflected the central government's determination in curbing serious violation.

(b) Consequence of serious tax offences

Taxpayers in serous tax offence will be disclosed publically (a.k.a. "blacklisted") and subject to multi-authority punishments according to the 2016 memorandum concluded among the 34 authorities concerned. The types of punishment have been substantially increased from 18 to 28, which include, inter alia, the following:

  • Blacklisted taxpayers' rating in tax will be downgraded to D, leading to the following consequences:
  • Subject to public disclosure of its tax data and the name of the persons-in-charge;
  • Subject to a limitation on the amount of VAT invoices it can purchase;.
  • Subject to strict requirement on export tax refund application; and
  • Subject to more tax investigation / audit, etc.
  • Further, blacklisted taxpayers' rating in foreign exchange administration will be downgraded to B, subject to a tighter administration in documentation review, application procedures, foreign exchange settlement, receipts and payments for trade.
  • The persons in charge (legal representative and CFO, etc.) of the blacklisted enterprise will also be held liable in person for 18 types of penalty measures.

2. Customs joint punishment

Serious customs violators will be subject to a different set of joint penalty administration from that for tax violations, based on the memorandum signed by 33 government ministerial bodies on 29 March 2017.

WTS observation

China has its claws out in taking collaborative actions to ensure that serious offenders will pay a high price. Such a large number of government authorities signing in to the joint penalty collaboration is a testament to the central government's solid conviction. The message is clear that serious violation in tax and customs will be dealt with not only within the two administrations, but across many others. The consequences can be very severe and detrimental to the companies or individuals concerned.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.