Global Rule May Put Some China Tax Policy at Risk, Adviser Says

The preferential tax policies China offers to some multinational businesses could be at risk under new global rules to set a minimum corporate tax, according to a legal adviser to the Ministry of Finance.

The tax plan will have an overall “positive impact” on China by improving the sustainability of fiscal revenues and providing a fair international business environment, said Shi Zhengwen, vice-president of the China Association for Fiscal and Tax Law. However, China will need to adjust some of its tax policies to comply with the rules, he said.

“The signing of this agreement poses certain challenges to China’s high-tech enterprises,” he said. “But tax incentives for companies investing in tangible assets should remain intact, while some digital economy companies could face challenges.”

Shi isn’t directly involved in policy making and was speaking in his personal capacity.

On Thursday, 130 countries backed a plan led by the Organisation for Economic Cooperation and Development to set a minimum corporate tax rate of at least 15% and establish a new regime for sharing the taxes imposed on multinational firms’ profits.

China has a basic corporate tax rate of 25% for most companies, but reductions for high-tech sectors and for investment in research and development mean effective rates can fall below 15%.

“Preferential tax policies granted by China to some multinational enterprises may be canceled, which is conducive to increasing tax revenue,” Shi said. “But I don’t think the removal of tax incentives is likely to trigger an exodus of multinationals from China, as the rest of the world will obey the same rule.”

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