China Withdraws Preferential Tax Treatment Of Taiwan Airlines

by Mary Swire, Tax-News.com, Hong Kong

28 January 2010

China has retaliated against Taiwan's failure to reciprocate preferential tax arrangements for airlines and shipping companies, by reinstating tax charges.

According to reports in the Taiwan press, China Airlines and other Taiwanese air carriers have recently seen the reinstatement of 3% sales tax and 1.25% income tax on their cargo and passenger revenue connected with their flights to mainland China, and the Chinese authorities are seeking to backdate the charges to December 2008.

In keeping with an accord reached between P. K. Chiang, chairman of the Taipei-based Straits Exchange Foundation, and Chen Yunlin, chairman of the Beijing-based Association for Relations Across the Taiwan Strait, dating back to December 1997, China and Taiwan had agreed to waive usual airline taxes on a reciprocal basis, but Taiwan failed to ratify its side of the agreement in parliament (Yuan) up till now.

Mainland China's sea and air transportation companies still have to pay 2.5% income tax, and as evidence of its dissatisfaction, China has prevented the airlines from repatriating income from China until the back tax is paid.

This is causing a cash crisis among the airlines, who reportedly are urgently seeking assistance from the Taiwan Ministry of Finance to sort out the matter.

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