China is planning to require multinationals to disclose more detailed information about their overseas affiliates as part of an international effort against tax evasion.
The proposal would make it more difficult for large companies to avoid taxes by shifting profits among different countries, the Wall Street Journal reports, citing tax consultants.
It’s in line with international corporate tax rules the G20 bloc of major economies endorsed last year.
The measures could be announced as early as this month, according to two sources.
For companies that have made deals in so-called tax havens, the new rules would significantly raise the odds of penalties, said Travis Qiu, a partner of Ernst & Young (China) Advisory Ltd. in Shanghai.
The measures would be applicable to transactions made after Jan. 1 this year and be reflected in companies’ tax filings next year, the report said.
Unlike existing regulations on information disclosure unveiled in 2008, the new measures cover multinational companies’ overseas affiliates that don’t have direct transactions with China, said Qiu, a former adviser to Chinese authorities.
“The new requirements are much more extensive and detailed than before,” he said.
“These are designed to help enhance transparency and fair competition.”
Qiu said he would advise companies using tax havens “to adopt immediate remedy measures as there is a possibility that not one but several [countries’] taxation authorities may go after them”.
The use of offshore entities as part of corporations’ tax strategy has come under increasing scrutiny after the release of documents leaked from Panamanian law firm Mossack Fonseca.
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