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Simplify Tax Collection Processes to Fully Yield Dividends of the Reform
— SAT Clarifies Four Measures for VAT Management Services
2017-09-19

Issuance Date: August 23, 2017     Source: General Office of the State Administration of Taxation


To further implement the arrangements of the CPC Central Committee and the State Council for deepening the reform of delegation, regulation and service and create a favorable business environment, the State Administration of Taxation (SAT) has recently released the Announcement of VAT-related Issues Like Tax Exemption Filing for Cross-border Taxable Behavior, making clarity on four VAT-related issues, namely, tax exemption filing for cross-border taxable behavior, claiming input tax credits for the traffic and transport industry, invoicing for the leasing of real estate on behalf of individuals, and invoicing for discount and transfer discount businesses.


Tax exemption for the same cross-border taxable behaviors, with no need to file them transaction by transaction


After the full rollout of the VAT pilot program, the SAT issued the Management Measures for VAT Exemption on Cross-border Taxable Behaviors After VAT Pilot Program (Interim), specifying the specific requirements on filing materials and processing processes, and defining the responsibilities and obligations of tax authorities and enterprises. To further promote taxpayers to enjoy the dividends yielded by the reform, this Announcement clarifies that enterprises will no longer need to go through filing for the same cross-border taxable behaviors after the first tax exemption filling has been duly completed.


"We provide software technical services in Russia, and enjoy VAT exemption on technical services for overseas taxpayers. The elimination of filing transaction by transaction will significantly reduce tax burdens," said Zhuo Yiwei, deputy financial supervisor at Eastcompeace Technology Co., Ltd.


The Announcement also clarifies that any taxpayer who fails to provide all materials evidencing tax exemption for follow-up management by tax authorities shall be disqualified for tax exemption, and those that have enjoyed the preferential treatment shall make payment and be dealt with in accordance with the law.


Logistics enterprises may present the invoices and claim input tax credits for their procurement of product oil on their own


It is learned that most logistics companies cannot complete all transport services on their own, and they often subcontract their businesses to other transport companies including the self-employed transport service provider, which is called carrying without means of transport in the industry. Taxpayers providing such business are required to pay VAT on the transport services they provide, according to the existing policies and regulations.


Will the input tax invoice for product oil we purchase on our own and hand over to the actual carrier, and the freight fees we pay, when subcontracting the transport services to the self-employed transport service provider, could be used for deduction has triggered heated debates, some logistics companies say.


"Although logistics companies have not engaged in transporting, yet they sign the transport service contract with the shipper and collect freights as a carrier, so they are actually transport service providers and are duly allowed to offset the input tax on transport services," said an official of the Goods and Services Tax Department of the SAT.


"Fuel tax and tolls are heavy expenses of logistics companies. The clarification of the deduction policies for input VAT well assures logistics companies," said Huang Jing, financial head at Jiangxi Lianyuan Logistics Co., Ltd.


Intermediaries can be entrusted with invoicing for the lease of real estate owned by individuals


"I have to issue an invoice to the tenant of my house. Can I entrust this with an intermediary?" Since the full rollout of the VAT pilot program, the focus of inquiries has been on invoicing for the lease of real estate owned by individuals.


For convenience, many individual owners entrust the intermediary with leasing their houses. But to validate the authenticity of the transaction and accuracy of the amount on the invoice, tax authorities require that the invoice could not be issued until the owner goes through the authenticity procedures by presenting the contract and ID card, which, however, is defied by some owners.


The Announcement specifies that, in this case, individual owners can entrust the intermediary and house leasing company to apply for the issuance of VAT invoices on their behalf to the local competent tax authorities.


"This measure makes it convenient for the individual owners to issue invoices to the tenant, enhances the proportion of VAT invoices for the tenant and reduce tax burdens on the landlord and tenant," said the head of Chaozhou Wenwei Real Estate Intermediary Co., Ltd.


Provisions on invoicing for discount and transfer discount business of financial institutions are clarified


In financing, there are persons who need funds transferring their commercial paper to banks in exchange for cash, and banks who transfer undue bills to other banks in exchange for cash for the sake of funds turnover. In such discount and transfer discount businesses, the institution that is the first to enjoy the discount shall pay the tax in full on the interest of the bills discounted, while the institution who accepts transfer discount will be exempted from paying any tax on the income from the interest of transfer discount.


To balance tax burdens on the institutions that are the first to enjoy the discount and the institutions who accepts discount transfer after the implementation of the VAT pilot program, the Announcement stipulates that, from January 1, 2018 onward, financial institutions who are involved in discount and transfer discount should pay the VAT on the interest income they obtain during the period they hold the bills.


To satisfy the demand of an applicant for a discount for obtaining the invoice in full amount after this policy change, the Announcement clarifies that from January 1, 2018 onward, a discount institution shall issue general VAT invoices to the applicant for a discount in full amount based on the discount interest of the bills, and the transfer discount institution shall issue general VAT invoices to the discount institution in full amount based on the discount interest.


According to the official of the Goods and Services Tax Department of the SAT, the three policies, namely, tax exemption filing for cross-border taxable services, input tax deduction for the transport industry, and entrusted invoicing for the lease of properties owned by individuals, will become effective on September 1, 2017, and also applicable to the matters that have not been handled this way before. Tax authorities will be committed to further advancing the reform of delegation, regulation and service, in a bid to fully yield the dividends of the reform by simplifying taxation processes, shortening the time spent on tax processing and streamlining and consolidating tax-related materials.

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