Foreign Firms High On China's Tax Evasion Hit List

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

07 August 2002

The representative offices of foreign firms have become the latest focus of the Chinese government's clampdown on tax evasion, according to several recent reports in the regional media.

'Self examinations' conducted by Beijing-based representative offices turned up around 1.15 billion yuan in overdue personal income tax last year, and the Sing Tao Daily reported that Microsoft employees in China alone were found to have underpaid their taxes by some 51 million yuan.

State Administration of Taxation figures released recently put the amount of foreign companies which have evaded Chinese taxes since the late 1990's at around 80%, which, it has been estimated, has cost the authorities 30 billion yuan per year.

However, opinion is divided as to the reasons behind the failure of foreign representative office employees to adequately fulfil their tax obligations.

Speaking to the Singapore-based Straits Times news service this week, an unnamed taxation bureau official blamed the pay structure adopted by many foreign multinationals - whereby half of the salary is paid by a local job agency, and half by the overseas parent company - for encouraging employees to dodge taxes.

However, the China Daily news service suggested last week that genuine ignorance of the country's tax laws could be behind the under-reporting. In order to address this, the newspaper said, the Chinese tax authorities have established a telephone hotline for expat workers.

The process of self-examination is set to continue until September, after which time, spot checks will take place, according to China Daily.

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