Executive summary

Although the China State Taxation Administration (STA) has yet to issue comprehensive legislation on advance tax rulings at the national level, Anhui, Shenzhen, Nansha of Guangzhou, Nanjing and other regions are already exploring the implementation of advance tax rulings.

In December 2023, the Shanghai Taxation Bureau issued trial administrative measures for tax advance rulings, which clarified the scope of advance rulings, application procedures and post-application administrative matters. In addition, the Shenzhen Taxation Bureau has released questions and answers on preemptive tax compliance assessment services for cross-border matters, providing risk assessment services for special tax adjustments related to future cross-border transactions.

Introduction of tax advance ruling regulations in various locations

Guangzhou Nansha and Shanghai have announced relatively detailed measures for advance rulings, while the Nanjing Area of the Jiangsu Free Trade Zone, Dongfang City and Ding'an County of Hainan Province, as well as Qitaihe of Heilongjiang Province have only briefly outlined implementation rules for advance rulings. Tax authorities in Shenzhen, Guangzhou, Ningbo, Qingdao, Xiongan New Area and other regions have also formulated relevant regulations but have not released them to public.

In general, the tax advance ruling regulations in various regions have certain common features when defining the scope of applicable matters, i.e., adoption of a combination of "white list " and "blacklist."

White list:

The tax-related matters stipulated in the current advance ruling regulations (trial) in various regions mainly contain the following conditions:

• Must be expected to occur in the future
• Must have significant economic interests at stake
• Must involve complex issues with specific facts
• Must have a reasonable business purpose
• May not be prohibited by laws and regulations
• May not apply relevant tax laws directly

Blacklist:

Shanghai, Nansha of Guangzhou, and other regions clearly stated in their respective local rules the matters to which an advance ruling does not apply. As the specific measures and local practices vary in different regions, taxpayers should gain deeper understanding of the local policies and prepare comprehensive, accurate documents and proactively communicate with the local tax authorities to improve the efficiency of the application process.

Shenzhen's compliance assessment service for special tax adjustments

The Shenzhen Municipal Taxation Bureau recently launched an innovative tax compliance assessment service for cross-border matters (hereinafter referred to as the "compliance assessment service"). It brings a new way to obtain tax certainty for taxpayers with cross-border transactions.

There are certain similarities between the compliance assessment service and the tax advance ruling. For instance, both are considered tax dispute prevention mechanisms and can improve tax certainty to a certain extent. However, the purpose of the compliance assessment service is mainly to provide preliminary risk assessment without addressing specific tax treatments or tax positions. In contrast, tax advance rulings involve more complex matters and can provide greater certainty on uncertain tax issues.

Specifically, if the taxpayer needs to seek advice on the risk level of special tax adjustments for future cross-border transactions, it can apply to the Shenzhen Municipal Taxation Bureau for evaluation. The Tax Bureau will express an opinion on the risk level for special tax adjustments or inform the taxpayer if they cannot reach a definitive conclusion.

This innovative service can effectively reduce tax compliance costs and improve tax certainty to a degree. Taxpayers should review their operating models and transaction flows and identify risky areas for which the compliance assessment service may be necessary or helpful.

Conclusion

As mentioned above, many regions in China have issued tax advance ruling regulations (but not all of them released to public), mainly to provide ruling services for complex tax-related matters for large-scale enterprises. Taxpayers with similar needs should proactively communicate with tax authorities to seek greater tax certainty.

It should be noted that obtaining an advance ruling opinion on certain tax matters does not completely remove risks or uncertainties. Taxpayers should pay attention to the effectiveness of the advance rulings. Moreover, whether the tax treatment approved in a ruling opinion is applicable to other scenarios would require further communications and confirmation with tax authorities. In addition, taxpayers should closely monitor the development of advance rulings in their regions to effectively utilize the service to improve tax certainty.

Interested parties should further observe whether the advance tax ruling is be introduced in the new Tax Collection and Administration Law and whether the China STA will respond to taxpayers' demands and issue unified legislation based on the pilot measures implemented in various locations. We will continue to monitor the progress and provide updates on latest developments.