China is making moves to toughen its stance on tax avoidance by foreign companies to prevent tax payments being directed overseas, Xinhua news agency said, after Beijing levied US$140 million in back taxes from US firm Microsoft Corp last week.
Beijing is to closely monitor the profit levels of foreign firms operating in China to ensure that companies do not shift profits to other regions where taxes are lower, a practice known as “base erosion and profit shifting” (BEPS), according to the Xinhua report late on Monday.
China is cracking down on business practices by overseas firms in the country, with a series of probes by antitrust regulators prompting business lobbies to say that multinational firms were being singled out by Beijing.
Xinhua reported last week that a US company whose name starts with “M” must pay the government 840 million yuan (US$137 million) in back taxes and interest, as well as more than 100 million yuan in additional taxes a year in the future.
The report said that the firm was one of the world’s 500 biggest firms and had established a wholly owned foreign subsidiary in Beijing in 1995.
Microsoft, which did not deny allegations over its involvement, is the only company that fits that description.
“China will coordinate with other countries to clamp down on BEPS plotting and cross-border tax avoidance,” Chinese State Administration of Taxation Deputy Director Zhang Zhiyong (張志勇) said.
Chinese President Xi Jinping (習近平) and other G20 leaders pledged to increase efforts to prevent tax avoidance last month.
China is the largest nation for foreign direct investment, but this fell for the fourth consecutive period on a cumulative basis in October, underscoring investor caution as the world’s No. 2 economy cools.
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