Chinese Tax Law and International Treaties

Chinese Tax Law

and International

Treaties

Lorenzo Riccardi

Chinese Tax Law and International Treaties

.

Lorenzo Riccardi

Chinese Tax Law and

International Treaties

Lorenzo Riccardi

Bergamo, Italy

ISBN 978-3-319-00274-3 ISBN 978-3-319-00275-0 (eBook)

DOI 10.1007/978-3-319-00275-0

Springer Heidelberg New York Dordrecht London

Library of Congress Control Number: 2013939354

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Dedicated to my father

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.

Contents

1 Legislative Background and Tax Reform .................... 1

1.1 Sources of Chinese Tax Law . . ........................ 1

1.2 People’s Republic of China . . ......................... 1

1.3 State Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.4 Local Tax Bureau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.5 Ministry of Finance (MOF) and State Administration

of Taxation (SAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.6 Tax Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1.7 Direct Taxes . . . ................................... 3

1.8 Individual Income Tax .............................. 3

1.9 Company Income Tax ............................... 4

1.10 Indirect Taxes . .................................... 4

1.11 Value Added Tax . . ................................ 5

1.12 Business Tax . . . .................................. 5

1.13 Consumption Tax . . . ............................... 5

1.14 Other Taxes . . . ................................... 6

1.15 Customs Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1.16 Individual Income Tax Subjects ........................ 6

1.17 Company Income Tax Subjects . . . . . . . . . . . . . . . . . . . . . . . . 7

2 Individual Income Tax Law .............................. 9

2.1 Taxation Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2.2 Residence and Length of Stay . . . . . . . . . . . . . . . . . . . . . . . . . 9

2.3 Worldwide Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2.4 Taxpayers and Tax Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2.5 Resident Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2.6 Temporary Visitor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2.7 Nonresident Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2.8 Chief Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2.9 “Expatriates” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2.10 Tax Summary Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

vii

2.11 Income Classification Group . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2.11.1 Employment Income . . . . . . . . . . . . . . . . . . . . . . . . . 13

2.11.2 Income from Self-Employment . . . . . . . . . . . . . . . . . . 14

2.11.3 Income from Royalties, Interest, and Dividends . . . . . . 14

2.11.4 Rents and Income from Lease and Transfer

of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

2.12 Tax Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

2.13 Employment Tax Standard Deduction . . . . . . . . . . . . . . . . . . . 15

2.14 Self-Employment Tax Standard Deduction . . . . . . . . . . . . . . . . 15

2.15 After-Tax Deduction (Tax Credit) . . . . . . . . . . . . . . . . . . . . . . 15

2.16 Tax Liabilities Computation . . . . . . . . . . . . . . . . . . . . . . . . . . 15

2.17 Employment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

2.18 Annual Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

2.19 Calculation of IIT on Self-Employment Income . . . . . . . . . . . . 18

2.20 IIT on Income from Royalties, Interest, and Dividends . . . . . . . 18

2.21 Production and Business Operation Income Earned by Individual

Business Owners, Sole Proprietors, and Investors/Partners of

Partnership Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.22 Director Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.23 National Social Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.24 Social Insurance Law Reform . . . . . . . . . . . . . . . . . . . . . . . . . 19

3 Company Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

3.1 The Innovations Introduced by the New EITL . . . . . . . . . . . . . 23

3.2 Taxable Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

3.3 Resident Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

3.4 The Wholly Foreign-Owned Enterprise . . . . . . . . . . . . . . . . . . 24

3.5 Representative Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

3.6 Permanent Establishments of Nonresidents . . . . . . . . . . . . . . . . 24

3.7 Nonresident Companies Without a Permanent

Establishment in the PRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

3.8 Categories of Taxable Income . . . . . . . . . . . . . . . . . . . . . . . . . 25

3.9 The Sources of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

3.10 Tax Liabilities and Computation . . . . . . . . . . . . . . . . . . . . . . . 26

3.11 Deduction of Mortgage Interest . . . . . . . . . . . . . . . . . . . . . . . . 26

3.12 Business Entertainment and Sponsorship Expenses . . . . . . . . . . 27

3.13 Company Income Tax Deduction Tables . . . . . . . . . . . . . . . . . 27

3.14 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

3.14.1 Depreciation Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 27

3.14.2 Depreciation Period . . . . . . . . . . . . . . . . . . . . . . . . . . 28

3.14.3 Depreciation of Intangible Assets . . . . . . . . . . . . . . . . 28

3.14.4 Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

3.15 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

3.16 Income from Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

3.17 The Withholding Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

viii Contents

3.18 Tax Computation and Tax Return . . . . . . . . . . . . . . . . . . . . . . 32

3.18.1 Tax Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

3.18.2 Tax Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

3.18.3 Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

3.18.4 Specific Procedure to Calculate Representative

Office’s Taxable Income . . . . . . . . . . . . . . . . . . . . . . 38

3.18.5 Actual Revenue Method . . . . . . . . . . . . . . . . . . . . . . . 41

3.18.6 Deemed Income Method . . . . . . . . . . . . . . . . . . . . . . 41

3.18.7 Cost-Plus Method . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

3.19 Anti-Avoidance Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

3.19.1 Enterprise Income Tax Law Reform . . . . . . . . . . . . . . 42

3.19.2 General Anti-Avoidance Clause . . . . . . . . . . . . . . . . . 42

3.19.3 Thin Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 43

3.19.4 Controlled Foreign Companies . . . . . . . . . . . . . . . . . . 43

3.20 Transfer Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

4 Turnover Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

4.1 Type of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

4.2 Business Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

4.3 Taxpayers and Activities Subject to Business Tax . . . . . . . . . . 45

4.4 The Tax Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

4.5 Determination of the Business Tax . . . . . . . . . . . . . . . . . . . . . 46

4.6 Business Tax Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

4.7 Business Tax Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

4.8 Value Added Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

4.9 Taxable Subjects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

4.10 Small-Scale and Normal Taxpayers . . . . . . . . . . . . . . . . . . . . . 48

4.11 Activities Subject to Value Added Tax . . . . . . . . . . . . . . . . . . 49

4.12 Goods and Services Exempt from Value Added Tax . . . . . . . . . 49

4.13 Calculation of Value Added Tax . . . . . . . . . . . . . . . . . . . . . . . 50

4.14 VAT Refund on Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

4.15 VAT Subjects and Rates Tables . . . . . . . . . . . . . . . . . . . . . . . . 51

4.16 Consumption Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

4.17 Taxpayers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

4.18 Tax Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

4.19 Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

5 Profiles of International Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

5.1 Agreements Against Double Taxation . . . . . . . . . . . . . . . . . . . . 57

6 Introduction to International Taxation . . . . . . . . . . . . . . . . . . . . . . 67

6.1 Defining International Taxation . . . . . . . . . . . . . . . . . . . . . . . . . 67

6.2 Determining International Tax Policy . . . . . . . . . . . . . . . . . . . . 69

6.2.1 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

6.2.2 Investment Appeal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

6.2.3 Import/Export Capital Neutrality . . . . . . . . . . . . . . . . . . 70

6.2.4 Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Contents ix

6.3 Double Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

6.4 Sources of Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

6.4.1 Tax Jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

6.4.2 Source Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

6.4.3 Residence Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . 75

6.5 Types of Double Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

6.5.1 Source–Source Conflicts . . . . . . . . . . . . . . . . . . . . . . . . 75

6.5.2 Residence–Residence Conflicts . . . . . . . . . . . . . . . . . . . 75

6.5.3 Residence–Source Conflicts . . . . . . . . . . . . . . . . . . . . . . 76

6.6 Tax Treaty Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

6.6.1 The Organization for Economic Cooperation

and Development (OECD) Model . . . . . . . . . . . . . . . . . . 77

6.6.2 The United Nations (UN) Model . . . . . . . . . . . . . . . . . . 78

7 Transfer Pricing Policies in China . . . . . . . . . . . . . . . . . . . . . . . . . 81

7.1 Definitions and Application in China . . . . . . . . . . . . . . . . . . . . . 81

7.2 OECD Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

7.2.1 Advance Pricing Arrangement (“APA”) . . . . . . . . . . . . 83

7.2.2 Arm’s-Length Principle . . . . . . . . . . . . . . . . . . . . . . . . 84

7.2.3 Arm’s-Length Range . . . . . . . . . . . . . . . . . . . . . . . . . . 84

7.2.4 Associated Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . 84

7.2.5 Balancing Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

7.2.6 Buy-In Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

7.2.7 Buy-Out Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

7.2.8 Commercial Intangible . . . . . . . . . . . . . . . . . . . . . . . . . 85

7.2.9 Comparability Analysis . . . . . . . . . . . . . . . . . . . . . . . . 85

7.2.10 Comparable Uncontrolled Transaction . . . . . . . . . . . . . 85

7.2.11 Comparable Uncontrolled Price (CUP) Method . . . . . . . 85

7.2.12 Compensating Adjustment . . . . . . . . . . . . . . . . . . . . . . 86

7.2.13 Contribution Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 86

7.2.14 Controlled Transactions . . . . . . . . . . . . . . . . . . . . . . . . 86

7.2.15 Corresponding Adjustment . . . . . . . . . . . . . . . . . . . . . . 86

7.2.16 Cost Contribution Arrangement (“CCA”) . . . . . . . . . . . 86

7.2.17 Cost-Plus Markup . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

7.2.18 Cost-Plus Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

7.2.19 Direct Charge Method . . . . . . . . . . . . . . . . . . . . . . . . . 87

7.2.20 Direct Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

7.2.21 Functional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

7.2.22 Global Formulary Apportionment . . . . . . . . . . . . . . . . . 87

7.2.23 Gross Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

7.2.24 Independent Enterprises . . . . . . . . . . . . . . . . . . . . . . . . 88

7.2.25 Indirect Charge Method . . . . . . . . . . . . . . . . . . . . . . . . 88

7.2.26 Indirect Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

7.2.27 Intragroup Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

7.2.28 Intentional Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

x Contents

7.2.29 Marketing Intangible . . . . . . . . . . . . . . . . . . . . . . . . . . 89

7.2.30 Multinational Enterprise Group (MNE Group) . . . . . . . . 89

7.2.31 Multinational Enterprise (MNE) . . . . . . . . . . . . . . . . . . 89

7.2.32 Mutual Agreement Procedure . . . . . . . . . . . . . . . . . . . . 89

7.2.33 Net Profit Indicator . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

7.2.34 “On Call” Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

7.2.35 Primary Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

7.2.36 Profit Potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

7.2.37 Profit Split Method . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

7.2.38 Resale Price Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

7.2.39 Resale Price Method . . . . . . . . . . . . . . . . . . . . . . . . . . 90

7.2.40 Residual Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

7.2.41 Secondary Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . 91

7.2.42 Secondary Transaction . . . . . . . . . . . . . . . . . . . . . . . . . 91

7.2.43 Shareholder Activity . . . . . . . . . . . . . . . . . . . . . . . . . . 91

7.2.44 Simultaneous Tax Examinations . . . . . . . . . . . . . . . . . . 91

7.3 Transfer Pricing In China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

7.4 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

7.5 Documentation and Disclosure Requirements . . . . . . . . . . . . . . . 93

7.6 Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

7.7 Transfer Pricing Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

7.7.1 Comparable Uncontrolled Price Method (Cup) . . . . . . . . 97

7.7.2 Resale Price Method . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

7.7.3 Cost Plus Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

7.7.4 Transactional Net Margin Method . . . . . . . . . . . . . . . . . 98

7.7.5 Profit Split Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

7.8 Transfer Pricing Audit and Adjustments . . . . . . . . . . . . . . . . . . 98

7.9 Advance Pricing Arrangements (APA) . . . . . . . . . . . . . . . . . . . . 101

8 Anti-Avoidance Rules and Permanent Establishment Concept . . . . 103

8.1 The General Anti-Avoidance Rules in China . . . . . . . . . . . . . . . 103

8.2 Anti-Avoidance Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . 105

8.2.1 Thin Capitalization Rules . . . . . . . . . . . . . . . . . . . . . . . . 105

8.2.2 Transfer Pricing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . 106

8.2.3 Controlled Foreign Corporation Legislation . . . . . . . . . . 106

8.3 Permanent Establishment: Definitions & Exemptions . . . . . . . . . 107

9 International Tax Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

9.1 American Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

9.1.1 China–American Area Bilateral Agreements’ History . . . 111

9.1.2 Brazil–China Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

9.1.3 Canada–China Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . 138

9.1.4 USA–China Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Contents xi

9.2 Asian Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

9.2.1 China–Asian Area Bilateral Agreements’ History . . . . . . 163

9.2.2 India–China Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

9.2.3 Japan–China Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

9.2.4 Singapore–China Treaty . . . . . . . . . . . . . . . . . . . . . . . . . 202

9.3 European Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

9.3.1 China–European Area Bilateral Agreement’s History . . . 216

9.3.2 France–China Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . 224

9.3.3 Germany–China Treaty . . . . . . . . . . . . . . . . . . . . . . . . . 238

9.3.4 Great Britain and Northern Ireland–China Treaty . . . . . . 250

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

xii Contents

Chapter 1

Legislative Background and Tax Reform

The Chinese tax system has recently developed closely to the economic growth of

the country. The entry of China into the World Trade Organization (WTO) and the

economic boom that has characterized recent years have made clear the necessity of

overhauling a regulatory system in order to provide stability in the administration of

the country, even in the tax field. The desire of becoming a leader in the Asian

region, keeping up with the major world powers, has led China to make numerous

amendments to improve the tax system and make it adapt to the rapid expansion of

the economy and, at the same time, to attract an increasing number of foreign

companies.

As a result, a significant tax system overhaul was achieved on March 16, 2007

with the enactment of the Enterprise Income Tax Law, which then came into force

on January 1, 2008. The new scheme joined together two systems of corporate

income tax that were previously separated, the Domestic Invested Enterprises and

the Foreign Invested Enterprises. The main purpose of the reform was to standard￾ize tax treatments for foreign and local companies, removing privileges for foreign

companies and formulating new tax legislation in harmony with Occidental laws.

1.1 Sources of Chinese Tax Law

In China, competent authorities with the power to legislate within the tax field can

be listed as in Table 1.1.

1.2 People’s Republic of China

The Chinese law system has a hierarchical organization. At the top, there is the

Constitution of the People’s Republic of China, enacted in 1982 and containing the

fundamental rights and duties of Chinese citizens and the structure and principles of

the government. It states that supreme legislative powers are extended to the

L. Riccardi, Chinese Tax Law and International Treaties,

DOI 10.1007/978-3-319-00275-0_1, © Springer International Publishing Switzerland 2013

1

National People’s Congress, which de facto establishes the validity and priority of

legal sources, having the last word for enacting and interpreting laws.

1.3 State Council

The State Council is the supreme organ of the executive power controlling

ministries and other administrative organizations. It is composed of about

50 members and chaired by the Prime Minister. The National People’s Congress

delegates most of the legislative powers to the State Council, which promulgates

administrative regulations. In addition, these regulations are supplemented with

instructions, rules, and precepts in the form of circulars, issued by ministries under

the supervision of the State Council. The authorities responsible for fiscal matters

are the Ministry of Finance (MOF) and the State Administration of Taxation (SAT).

1.4 Local Tax Bureau

The local Assemblies are authorized to implement local laws and regulations, but

these laws and regulations must not be in conflict with the Constitution, laws

enacted by National People’s Congress, and regulations issued by the State Council.

1.5 Ministry of Finance (MOF) and State Administration

of Taxation (SAT)

The State Administration of Taxation (SAT) and Ministry of Finance (MOF)

interpret tax laws through the issuance of circulars. The key role in the formulation

and coordination of tax policies is played by the SAT, which oversees tax offices’

ongoing work at provincial and municipal levels; the MOF provides support to the

development of fiscal policies implemented by the SAT. The SAT is put in charge

by the State Council of collecting and administrating taxes, which generate

revenues for both the central government and local governments. The individual

Table 1.1 Chinese tax authorities

The National People’s Congress, which has legislative powers

The State Council, which has executive powers

The People’s Congress, which has legislative powers at local level (provinces, regions, and cities)

The Ministry of Finance (MOF) and State Administration of Taxation (SAT), which is responsible

for the regulation of financial assets, tax, and currency activities

2 1 Legislative Background and Tax Reform