Tax Inspections are now subject to specific regulations

Philippe Snel

Since 2004, Philippe is permanently established in Shanghai and has assisted numerous foreign investors to establish, develop and operate their businesses in China. Philippe mainly advises in the fields of corporate law, compliance and technology transfer.

On July 12, 2021, the State Taxation Administration (“STA”) issued new Provisions on Case Handling Procedures for Tax Inspection (Order No. 52 of the STA, the “Provisions”), which came into force on August 11, 2021. The former Operating Procedures for Tax Inspection (Guo Shui Fa [2009] No. 157, the “Procedures”) are repealed as from the same date. Below are some highlights of the new Provisions.

1. Legal Enhancement
While the original Procedures were only meant to serve as a normative document for the administration itself, the new Provisions represent a rollout of actual department-level regulations. As such the legal effectiveness of the rules surrounding inspections will be greatly improved.

2. Clarifying Legislative Purpose
Right off the bat, article 1 of the Provisions adds the following language: “Protecting the legitimate rights and interests of taxpayers, withholding agents and other tax-related parties”.

Clearly this indicates further emphasis on the concept of people-oriented legislation, including the notion of ensuring protection of the legal interests of the administrative counterparts when handling inspection cases.

3. Personal Information Concerns
Article 9 of the Provisions clarifies that “personal information accessed during the process of tax inspection shall be kept confidential in accordance with the law”. Mentioning the protection of personal information of parties involved in a test inspection is quite remarkable as it is meant to apply to a public administration. That said, it falls in line with other developments we have seen regarding cybersecurity and data in recent months.

4. Procedures for Extracting Electronic Data
Article 23 of the Provisions further clarifies the requirements for extracting electronic data: “For the collection and extraction of electronic data, inspectors shall make on-site disposition transcripts indicating the source of electronic data, cause, the purpose or object of proof, the extraction time, place, method and process, the storage place of the original memory medium and the signature and seal of the electronic data memory medium, among others. In case of data compression, the compression method and integrity check value shall be indicated in the transcripts. ”

As mentioned above, this is another indication that legal compliance regarding data protection is becoming a primary focus in a widening set of various laws even when it comes to regulating the work of public administrations.

5. Suspension or Postponement of Fines
The Provisions also add Article 51: “Where a party does have financial difficulty and needs to delay the payment of or pay in installments for a fine, the payment of the fine may be deferred or made in installments if the party files an application with the tax bureau and if such application is approved by the tax bureau.”

In other words, demonstrable difficulties of the tax payer will be fully considered, so that the enforcement of tax inspection and potential ensuing penalties will be handled, of course, in full compliance with the law but also by allowing equitable solutions to be applied.

With the implementation of the Provisions, the standards applicable to the tax administration when conducting tax inspection cases have now become effective legal rules. Moreover the Provisions are obviously aiming to promote more people-centric practices by ensuring compliance by the public administration of the data and privacy protection regulations, amongst other means. It remains to be seen how the Provisions will be effectively applied and eventually enforced of course but, as such, these are remarkable enough evolutions to be noted.

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