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Clarify Legal Liabilities and Optimize Management Models
— Export Tax Refund (Exemption) Policy Adjusted and Refined for Foreign Trade Comprehensive Service Providers
2017-10-31

Issuance Date: October 31, 2017   Source: General Office of the State Administration of Taxation


The State Administration of Taxation (SAT) has recently issued the Announcement on Adjusting and Refining the Export Tax Refund (Exemption) Policy for Foreign Trade Comprehensive Service Providers (No. 35 [2017], "Announcement"), which clarifies that export tax refunds applied for by foreign trade comprehensive service providers ("comprehensive service providers") on an agency basis are to be declared in a centralized way for a productive enterprise starting from November 1, 2017, rather than as self-run exportation. This means that it is made certain that comprehensive service providers are agents while productive enterprises are the actual applicants for tax refunds and shall assume relevant legal liabilities.


ID, rights and responsibilities of comprehensive service providers defined more clearly


Comprehensive service providers are a new business format that has emerged in recent years. They provide foreign trade-related services in customs declaration and commodities inspection, logistics, tax refund, settlement, and credit insurance for domestic SMEs in the manufacturing industry. They have developed rapidly, playing active roles in helping SMEs expand into global markets, reduce trading cost and address financing difficulties, and making great contribution to foreign trade restructuring and supply-side reform as well as cultivating new advantages in export, based on innovation of commercial models, the internet and big data.


"The existing policy stipulates that if a comprehensive service provider who applies for export tax refunds (exemption) for a productive enterprise meets conditions, the export business could be regarded as its self-run business, and it shall apply for export tax refunds (exemption) and take on primary responsibilities," said an official from the SAT Goods and Services Tax Department. This means that although the actual exporter is the productive enterprise while the comprehensive service provider is an agent and knows little about the authenticity of the exported goods, the primary responsibility shall be borne by the comprehensive service provider, not the productive enterprise, in case of export tax frauds. As a matter of fact, however, the comprehensive service provider only collects service fees and cannot afford relevant punishments for frauds. To address these issues, the SAT issued the Announcement after in-depth investigation.


Under the principle of "the actual exporter receiving the export tax refunds and performing primary responsibilities", the Announcement clarifies that for export tax refunds applied by a comprehensive service provider, the productive enterprise is the actual applicant and shall bear the primary responsibilities while the comprehensive service provider is the agent and shall bear the joint and several liabilities. In addition, the tax refunds for self-run export and agency export by a comprehensive service provider continue to be subject to the existing management regulations. This means that the comprehensive service provider could select the tax refunding model by business nature. The release of the Announcement meets the conditions for a comprehensive service provider to handle export tax refunds as an agent and addresses the inconsistency between liabilities a comprehensive service provider shall assume and the nature of its operations.


According to Fan Yong, professor at the Central University of Finance and Economics, the release of the Announcement is a quick response by tax authorities to support the development of comprehensive service providers, and the Announcement defines the rights and responsibilities of enterprises more clearly, and helps further standardize export tax refund management and makes it more orderly.


Tax refunding process for comprehensive service providers further clarified


The Announcement specifies the conditions and methodology for applying for export tax refunds by comprehensive service providers as agents. Comprehensive service providers must meet their definition in the Circular on Promoting the Healthy Development of Foreign Trade Comprehensive Service Providers (Shangmaohan No. 759 [2017])by five authorities including the Ministry of Commerce, and file with the competent tax authority. The comprehensive service provider also shall institute a sound risk control system with regard to export tax refunds and sign with the productive enterprises a standardized contract for foreign trade comprehensive services.


According to the official from the SAT Goods and Services Tax Department, the Announcement clarifies that the productive enterprise and comprehensive service provider shall file with their respective competent authority for export tax refunds for the productive enterprise; in exporting, the productive enterprise shall calculate the output VAT at FOB and applicable tax rate, and declare and pay taxes first, and then issue a special VAT invoice to the comprehensive service provider indicating "for export tax refund only" in the remarks as the evidence for applying for export tax refund by the comprehensive service provider as an agent, not as the deduction voucher or the tax refund voucher for the comprehensive service provider's self-run export. After reviewed by tax authorities, the tax will be refunded into the account designated by the productive enterprise. The comprehensive service provider is to file a tax return for the commissions it collects from the productive enterprise.


The new export tax refunding process is clearer and more convenient, highlighting the principle of rights matching responsibilities, controllable risks, and easiness to comply with and to pay taxes, and indicating tax authorities' concepts of system, management and service innovation, according to Tang Jiqiang, professor at the Southwestern University of Finance and Economics.


Risk control against tax refund frauds tightened


The Announcement also stresses risk control with regard to export tax refunds on an agency basis, so as to standardize in a multi-faceted way the behavior of foreign trade comprehensive service provider as an agent.


Tax collection and refunding are more closely linked. With productive enterprises subject to export tax refund (exemption) management, tax authorities will begin managing both productive enterprises and comprehensive service providers, not just the latter as it did before. The competent tax authorities of productive enterprises and comprehensive service providers have emphasized the link between tax collection and refunding, information communication and collaboration by intensifying day-to-day and risk management with regard to export tax refunds, in an attempt to effectively guard against risks arising from export tax frauds while handling export tax refunds accurately and on time.


Comprehensive service providers will tighten internal risk control. "The Announcement requires comprehensive service providers to build an information-based risk control system for handling export tax refunds on an agency basis, conduct ex-ante, ongoing and ex-post risk identification and analysis of exportation that entitles exporters to enjoy tax refunds, and review on-site the export contracts, orders, account books, and production capacity of the productive enterprise that applies for a tax refund of more than RMB 1 million. This Announcement is very practicable," said the official from the SAT Goods and Services Tax Department.


Punishments with regard to export tax refunding on an agency basis are defined more clearly. According to the Announcement, in the event of export tax refund frauds by a productive enterprise, tax authorities shall get the productive enterprise to perform its primary responsibilities first. In case of any tax refund to be recollected, the competent tax authority of the productive enterprise shall do so with the productive enterprise, and that of the comprehensive service provider shall cooperate. By the extent of liabilities involved in slackened review of the productive enterprise by the comprehensive service provider, the category of export tax refund management shall be reduced or the provider shall be ordered to stop applying for export tax refunds as an agent. Any comprehensive service provider who is an accomplice shall also be held liable.


The Announcement sets the effective date of the new policy and introduces the transitional policy. The new export refund (exemption) policy is to become effective on November 1, 2017, subject to the export date indicated on the Export Declaration. The existing export tax refund (exemption) management measures for foreign trade comprehensive service providers are to be rescinded at the same time. But the existing measures will remain applicable in the event that the invoice is issued before November 1 while export is conducted after November 1.

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