New GAAR procedures released - More or less GAAR disputes going forward?
The State Administration of Taxation (SAT) has just released the Administrative Measures on the General Anti-Avoidance Rule (GAAR) (the Measures) in the form of SAT Order No.32, which is a unique index evidencing the importance of these Measures. The Measures contain comprehensive guidance on the implementation of GAAR, including elaboration on certain principles, adjustment methods, procedures throughout the GAAR life cycle, and relevant documentation requirements.
The Measures are intended to provide sufficient guidance to ensure a transparent, fair and consistent procedural framework for GAAR implementation. It also reflects the SAT’s position and approach that GAAR is not to be taken as a general means of tax authorities to increase China’s tax collection revenues, but to serve as the last resort to counter cross-border aggressive tax avoidance schemes. Given this intention, it remains to be seen whether the Chinese local level tax authorities would be more or less keen to invoke GAAR extensively to attack cross-border tax avoidance schemes.
In any case, the potential exposure of GAAR is becoming imminent to multinational companies (MNCs), either operating/investing in China or abroad from China. For this reason, we recommend that MNCs should pay more attention to GAAR and act more prudently in planning or reviewing its operation and investment structures.
Also enclosed are full text of the Measures together with unofficial English translation prepared by PwC.