New challenges to tax risk management in China

Enterprises conducting business in China will be well aware that the rigour of Chinese tax enforcement has stepped-up significantly in the past few years. On the whole, from the SAT down through the various tiers of the Chinese tax administration, more systematic, Big Data-driven approaches to taxpayer monitoring, audit and investigation are being adopted. These allow for more effective targeting of tax avoidance and evasion, and better use of limited tax authority resources.

With the same mindset of improving the use of tax authority resources, there are efforts to limit time-intensive and low value-adding activity such as tax treatment pre-approvals, with taxpayer self-assessment becoming the rule. The removal by the State Administration of Taxation (SAT) of pre-approval authority from local tax authorities may also be linked to the wider central government efforts to limit discrepancies in the application of local authority discretion. SAT efforts to make the tax law more detailed and specific, and to improve administrative review procedures, combine with the efforts to limit local tax authority discretion, to produce more consistently applied tax law across tax authorities nationwide.

These developments bring potential benefits to taxpayers both in terms of certainty and more expeditious access to tax reliefs (for example, treaty benefits), but carry also greater risks for the non-compliant or the unprepared. Intentionally non-compliant taxpayers may find that they struggle to stay under the radar in future as tax authority detection efficacy improves and as taxpayer capacity to make deals with local authority decreases with the reduction in their discretion in applying the national law. Taxpayers intending to be compliant but lacking effective tax risk management (TRM) systems and procedures may be ill-equipped to deal with the greater latitude they are being given to self-assess the applicability of special tax reliefs and treatments without need for pre-approval. Where inappropriate determinations are made or insufficient documentation/support is retained, in consequence of poor TRM procedures, this may come back to haunt the taxpayer on conduct of tax authority follow-up procedures.

As China moves into this new era of tax administration and as taxpayers need to effect a step-change in their tax risk management practices, it is worth briefly surveying some of the key trends driving these developments. This chapter examines how the SAT is working to improve the consistency and clarity of the tax law as well as the consistency of tax enforcement and certainty in tax outcomes with a view to facilitating moves to greater taxpayer responsibility for assessing their own tax position.

At the same time, taxpayers, having assumed greater responsibility for managing their own tax treatments and risks, must be aware that the Chinese tax authorities increasingly have at their disposal more tax information than ever before and have rapidly improving capabilities in pooling tax information for better tax audit targeting.

Ultimately, from both taxpayer and tax authority perspectives, it may ultimately concluded that the answer lies in closer taxpayer-tax authority cooperation.

The SAT is taking a tighter rein over the tax law-making process in China to ensure greater consistency. This includes measures which prohibit local tax authorities from making local tax rules at odds with existing SAT rules and the national law, as well as programmes to clean up and abolish existing local incentives. Notable in this regard was State Council Circular 64 [2014], though the very ambitious timeframe of that measure was tempered somewhat with the subsequent SAT Circular 25 [2015].

Such bolstering of the consistency of nationwide tax law is also reinforced by procedures through which taxpayers can initiate a SAT review of locally promulgated tax rules which they consider to be at odds with the national tax rules. The SAT is also making efforts to have more enforcement case decisions published on tax authority websites, such as where local tax authorities seek provincial level tax authority or SAT approval for application of the general anti-avoidance rule (GAAR), transfer pricing (TP) adjustments, or granting of treaty relief. Such measures should ensure the consistency of the rules, while the increased transparency supports a common understanding of the tax law among taxpayers and tax authorities in the future.

It might also be noted that the SAT has become much more open in its use of public consultations on significant tax law changes, and taxpayers and their advisers have seen their views taken on board to craft workable tax rules, consistent with other Chinese tax law provisions and guidance. Guidance from the SAT is also progressively becoming far more detailed and specific; witness, for example the indirect disposal rules in Announcement 7 [2015] as against the previous Circular 698 [2009], and the TP guidance in the Special Tax Adjustments discussion draft [2015] as against Circular 2 [2010]. Such greater specificity by the SAT ties the hands of local tax authorities to a greater degree and, in the absence of substantial involvement by the courts system in the interpretation of Chinese tax law, detailed SAT guidelines are the main channel through which the tax law is made more concrete.

At the same time it is noted that many aspects of the Chinese tax law remain to be clarified and provided with greater guidance, and, in the absence of a historic record of decided tax cases, obtaining clarity on the precise application of Chinese tax provisions continues to be inherently difficult.

The SAT's efforts go beyond ensuring consistency of tax rules to also seeking consistency in the enforcement of the rules in individual cases. New rules require local tax authorities to obtain approvals from higher level authorities, including from the SAT, for tax adjustments in individual tax cases. An example of this is treaty cases where Announcement 60 [2015] requires that SAT Order 32 [2014] on GAAR Measures be followed. As noted above mechanisms now exist for such higher level decisions to be publicised on tax authority websites. Guidance from the SAT, such as the GAAR Measures, also allows taxpayers to appeal their individual cases up from the local tax authorities to higher level authorities including the SAT. Strict new SAT guidance is also being set out, such as in SAT Announcement 10 [2015], on the circumstances in which local tax authorities are permitted to penalise taxpayers, with clear rules on the higher level prior approval which is required. The collective effect of such measures is expected to be the limitation of the arbitrary exercise of discretion by local tax authorities.

The new Tax Collection and Administration Law (TCA Law), which is in draft form and expected to be finalised in 2016 or 2017, will strengthen taxpayers' access to administrative reconsideration and mediation, and will institute the principle that the relevant authorities may not make decisions which would lead to a worse outcome for the review applicant. Importantly, given the extent to which taxpayers can be caught in the crossfire in disputes between local tax authorities over taxing jurisdiction in practice, the TCA Law also requires that such disputes be elevated to a common higher tax authority for resolution.

The TCA Law is also set to provide for a system of formal private rulings, which should allow for greater tax certainty for taxpayers in the future. Already, in practice, the SAT had been issuing rulings to the limited number of enterprises covered under the Tax Compliance Agreement programme, and the pilot scheme provided under SAT Circular 145 [2013]. The tax authorities in the free trade zones (FTZ) in Shanghai, Guangdong, Tianjin and Fujian have also recently started to provide, under SAT Circular 208 [2015], advance tax rulings (confirmed by the SAT) where the taxpayers have proven internal tax risk controls and an A-grading for tax credit rating purposes.

While all these SAT efforts to improve consistency of enforcement and certainty in outcomes for taxpayers are very welcome, it must be noted that China is a vast country with thousands of subordinate tax authorities, all managing tax districts with varying levels of economic sophistication and particular local circumstances. As such, a degree of tax enforcement inconsistency will always remain, to some degree, inevitable.

In parallel with these SAT efforts to improve the consistency and clarity of the tax law, and the consistency of enforcement with certainty in tax outcomes, is a progressive move towards abolition of tax authority pre-approvals. Chinese tax administration has long been characterised by a need for local tax authority pre-approvals for various deductions and exemptions. This could lead in practice to extensive hold-ups as taxpayers sought to persuade tax officials of the merits of their case, even in relation to quite straightforward cases (for example, tax deduction of losses arising on asset disposals against other income), and the great discretion it gave to officials could negatively affect the neutrality of the tax system towards taxpayers. On the flip side, taxpayers, having received tax authority pre-approvals, could be reasonably sure that the tax position adopted would not be overturned on later tax audit, assuming the officials who granted the approval remained in place. Written tax authority pre-approvals also served a variety of further purposes in China's highly regulated business environment, such as providing evidence to banks that tax had been settled on outbound payments such that a remittance could be processed.

In the future, the intent is that tax deduction/exemption/incentive treatments provided for under the tax law will simply be adopted by taxpayers in their tax filings, based on their own assessment and evaluation. These can be audited and adjusted by the tax authorities at a later time if claimed inappropriately. These changes are allied to a nationwide campaign to remove excessive administrative discretion from local officialdom and may be viewed as allied to the government's anti-corruption campaign.

Since March 2013 the State Council has issued 10 circulars abolishing administrative approval powers for 537 items. In 2014 the SAT had identified 87 remaining tax approval items in Announcement 10 [2014] of which 80 have been abolished since. The abolition of the pre-approvals have been accompanied by the issuance of new guidance setting out in detail how taxpayer filing and tax authority follow-up procedures are to operate in the future, with a view to ensuring more consistent procedures applied by local authorities. Examples of such shifts include:

• Accelerated tax depreciation – pre-approval abolished in State Council Circular 27 [2015] and new filing procedures issued in SAT Circular 56 [2015]

• Cost sharing agreements – pre-approval abolished in State Council Circular 27 [2015] and ex-post supervision procedures put in place under SAT Announcement 45 [2015]

• Tax treaty relief – pre-approval system abolished under State Council Circular 27 [2015] and replaced with system of taxpayer self-assessment and tax authority follow-up procedures in SAT Announcement 60 [2015]

• Tax clearance before remitting payments out of China – abolished under SAT Announcement 40 [2013] and replaced with a recordal system

• Special tax treatment for corporate tax restructurings – pre-approval abolished under State Council Circular 27 [2015] and new information reporting procedures provided under SAT Announcement 48 [2015] and SAT Announcement 72 [2014] for non-residents

• Tax incentives for software and integrated circuit enterprises, western regions, infrastructure projects, recycling, environmental protection, water/energy conservation projects and environmental equipment, venture capital, and technology transfer, and sundry other preferential treatments – pre-approvals abolished under SAT Announcement 58 [2015]

• Non-residents taxed on their China establishments or place of business or PE – approval for use of PE profit calculation methods abolished under SAT Announcement 58 [2015]

• Foreign enterprises registering as Chinese tax residents – approval abolished and new procedures introduced under SAT Announcement 22 [2015]

• Use of foreign tax credits and tax sparing relief in treaties – approval abolished and new filing and follow up procedures set out in SAT Announcement 70 [2015]

• VAT exemption for designated "exported services" – pre-approval abolished when excluded from the list of 'in-effect' approvals in SAT Announcement 10 [2014]

• Deduction of asset losses – pre-approval abolished when excluded from the list of 'in-effect' approvals in SAT Announcement 10 [2014]

• R&D expenses bonus deduction – pre-approval abolished when excluded from the list of 'in-effect' approvals in SAT Announcement 10 [2014]

Alongside the abolition of pre-approvals, new guidance in SAT Announcement 43 [2015] has made clear that a requirement for record filing before enjoying benefits may not be applied by local tax authorities. In practice, some local tax authorities, despite the abolition of pre-approvals, had used such prior record filing requirements as de facto pre-approval processes. The tax authorities could refuse to accept a prior record filing unless they were satisfied that tax had been paid; this was an issue will the abolition of tax clearances under Announcement 40 for remittances out of China. Announcement 43 now makes clear that record filing is rather to occur either at the time of the standard tax returns or thereafter. This is accompanied by efforts to reduce frequency of filings, for example in relation to treaty relief where filings on a once-off or every-three-year basis suffice for multiple uses of DTA benefits in the interim.

To cap off these extensive changes, in November 2015 the SAT issued a comprehensive 'Catalogue' of Chinese tax incentives with Announcement 76 [2015]. To facilitate administration of tax incentives the Catalogue give each tax incentive a specific unique code. The Catalogue also sets out specifically which documents are needed to be filed and to be kept on file as support. The Catalogue is a highly welcome restatement by the SAT of the existing incentives, their rules of application and necessary documentation. It is promised that the Catalogue will be updated on a rolling basis, as a useful guide to taxpayers and as a mechanism for the SAT to ensure consistency of administrative requirements by local authorities.

Whether these fundamental changes to the operation of the Chinese tax system will benefit or hinder taxpayers is a matter of some debate and will clearly depend on the circumstances of individual taxpayers. It should be noted that, in each case where pre-approvals have been abolished, significantly more detailed filing forms and documentation are being requested from taxpayers to feed tax authority follow-up procedures. In this regard, the extremely detailed new forms for treaty relief and restructuring special tax treatment might be noted, as well as the creation of a new category of TP Special Documentation for CSAs, which must be prepared by enterprises without reference to standard TP documentation preparation thresholds, under the draft new Special Tax Adjustments guidance.

For taxpayers, under the new system, it is ever-more crucial that:

• tax certainty can be obtained through clarity in the law;

• SAT procedures are sufficiently detailed and actually followed by tax authorities in practice and

• that risk of taxpayer internal error can be managed through TRM systems and protocols.

Where, for a particular tax issue:

• the SAT guidance is very clear and specific with little room for local interpretative discretion;

• the SAT procedural guidance on filings in relation to the relief/deduction, and procedures for administrative review up to the SAT are highly specified and effective in practice; and

• where the TRM systems and procedures of the taxpayer are sufficient to pick up and deal with risk areas,

then the new system may bring benefits.

Where any of these aspects are lacking then the new system may simply heighten taxpayer tax risk, outweighing any potential benefits.

The individual circumstances of taxpayers are crucial. Where, for example, a Chinese subsidiary makes regular payments to a foreign parent, then the abolition of tax pre-approvals for DTA WHT relief may constitute a great improvement. This expedites the remittance of amounts from China with reduced WHT rates and if the tax authorities, on their follow-up procedures, determine that DTA WHT relief was not warranted and extra tax must be paid, the Chinese subsidiary and foreign parent are in any case part of the same group. Where the Chinese payer is unrelated to the Chinese payee, unless further guidance can clarify remaining uncertainties on WHT agent liability and procedural matters, indemnities from non-residents may be necessary to allow the new system of DTA WHT relief up-front to apply as intended. Of course, the garnering of any benefit from the new procedures in terms of remittance efficiency is dependent on adequate guidance being given to banks on new procedures for remittances. Overall then, the jury is out on whether the new procedures will be beneficial for taxpayers but, if they are to be, then effective TRM is a crucial ingredient in the recipe.

It might be noted that, in tandem with lessening taxpayer-tax authority direct interaction by abolishing pre-approvals, the FTZs are also pushing various measures to allow all tax matters (for example, export tax refunds) to be handled remotely online, as detailed in SAT Circular 208 [2015]. If these prove to work acceptably and reduce taxpayer compliance costs, they are likely to be rolled out nationwide. This move online is also linked to efforts to handle all tax matters, where practicable, digitally (for example, move from paper to digital customs declarations, and corresponding use of the digital customs declaration in claiming export VAT refunds online; SAT Announcement 26 [2015]).

All of these moves outlined above, towards giving the taxpayer greater control of and responsibility for the tax determination process, are being accompanied by a clarification of when penalties apply for failure to meet the required taxpayer responsibility standard. The TCA Law will:

• clarify that late payment interest will be calculated at the prevailing market RMB loan rate (replacing the current 0.5% late payment surcharge); and

• reduce the upper threshold of penalties from five times to three times tax outstanding.

At the same time the TCA Law will:

• both increase (from three to five years) the standard statute of limitations period as well as capping the time limitation for evasion cases (15 years) and collection of unpaid taxes (20 years); and

• will remove the requirement to prepay taxes before a tax administrative appeal can be initiated.

The corollary of the tax authorities stepping back from pre-approvals and giving taxpayers more latitude to manage their own tax treatments and risks is that tax authority monitoring and follow up procedures take on an increasingly vigorous character. A big dimension of this shift is the exponential expansion of the sources of information at the Chinese tax authorities' disposal, which can then be harnessed for better tax audit targeting.

• As noted in the TP chapter in this volume, TP documentation is being radically stepped up. Along with the addition of the BEPS-driven master file and country-by-country reporting (CbCR), an extensive value chain analysis is called for in the TP local file. This is accompanied by specific TP documentation reporting on equity transfers and outbound investments, and by special documentation, for outbound service payments, which applies without threshold.

• Enhanced controlled foreign company (CFC) reporting under SAT Announcement 38 [2014]

• "China FATCA" under SAFE Circular 642 [2014] under which Chinese residents must report their foreign financial assets and liabilities, and all cross-border transactions

• China has significantly enhanced capacity for cross-border tax information exchange:

• Enhancements to the information exchange articles in China's treaties and entry into tax information exchange agreements (TIEAs) with the 10 major tax haven jurisdictions

• FATCA-related intergovernmental agreement with the US for automatic exchange

• Automatic information exchange under the OECD's Common Reporting Standard (CRS) system from 2018

• Multilateral exchange of intelligence on aggressive tax planning strategies through the OECD Forum of Tax Administration (FTA) and the Joint International Tax Shelter Information Centre (JITSIC) [Since renamed Joint International Tax Shelter Information and Collaboration].

• The TCA Law is set to introduce a taxpayer identification number (TIN) system under which both individuals and enterprises will be obliged to use their TINs when signing contracts/agreements, paying social insurance premiums, registering real estate and handling tax matters. Banks and other financial institutions shall record TINs in the bank accounts of taxpayers; where business-related payments are more than Rmb5,000 ($783) in a tax year, then the TIN of the payee must be provided by the bank to the tax authorities; for individual payment of more than Rmb50,000 the payee TIN must be provided to tax authorities within five days. The TIN is seen to provide an important underpinning for a general Real Estate Tax Law and revisions to the IIT Law.

• The TCA Law also introduces reporting on e-commerce businesses, with online trading platform operators required to provide the tax authorities with registration information of e-commerce traders operating on their platform, as well as trading status and payment history information on request.

• Tax authorities are also radically enhancing the information they collect on taxpayers' tax risk management systems. Originally carried out on an ad hoc basis, reviews of such TRM systems has become a steadily more standardised component of routine tax audit work, as well as in taxpayer self-investigations, and the public discussion draft on Special Tax Adjustments now directs tax authorities to conduct tests of taxpayers internal control systems as standard.

• As noted above, the "Follow Up" documentation being demanded by the SAT, consequent on the abolition of tax pre-approvals, is radically enhanced. Note, for example, in this regard the extremely detailed new forms needed for treaty relief under SAT Announcement 60 [2015]

It should be noted that the capacity of the Chinese tax authorities to store, manipulate and interrogate this data is greatly enhanced by the shift to use of digital formats. Most of the enhanced tax information items outlined above will be received in digital formats. Digitisation is further propelled by the efforts, for example in the FTZs, to push all taxpayer-tax authority communications into the online realm, as well as by the customs and VAT efforts to handle all documentation digitally (noted above). Such digitisation also crucially supports the pooling and sharing of such data for enhanced tax administration, as discussed below.

In parallel with this torrent of rich, new data sources becoming available to the SAT and to various local tax authorities within the Chinese tax administration, efforts are afoot to improve the degree to which data is shared and pooled across tax authorities. The authorities continue to push the construction and expansion of information platforms to integrate information from multiple tax authorities with data from customs offices, commerce departments and administrations of industry and commerce. Both the TCA Law and the SAT public discussion draft on Special Tax Adjustments also further push for government database sharing mechanisms. It might be noted how information pooling is also being driven by the government's business administration simplification programme. In this regard one might consider the integration of the taxpayer, social security, and business licence certificates and codes (all regulated by three different authorities) into a common certificate and code, in SAT Circulars 160 and 482 [2015], supported by an information sharing arrangement.

Pooled data, including information on taxpayer TRM systems and historic compliance as well as business and transactional information, is then to be harnessed for the tax risk classification of taxpayers (referred to as a 'tax credit rating'). This allows for the concentration of audit resources on risky segments, with low risk taxpayers commensurately accorded a lower level of scrutiny and audit. The Special Tax Adjustments draft mandates the setting of such tax credit ratings for taxpayers, building on the steps taken so far in SAT Announcement 40 [2014] and Announcement 47 [2015] on tax credit ratings, and on earlier efforts such as the TP comprehensive indicator system.

The tax credit rating of taxpayers is also linked to the availability of preferred treatments. So, for example, as noted above, accessing the rulings system in the FTZs turns on the taxpayer having a sound TRM system and an A-grading under the tax credit rating system. In the FTZs SAT Circular 208 [2015] also provides that tax authorities will supply tax credit ratings to banks, who are then to give preferential funding to clients with an A grade tax credit rating. It is indicated that access to tax incentive treatments and other preference may in future turn on tax credit ratings.

It might be noted that the Chinese tax authorities are making very significant investment in data warehousing technology to support the analysis and use of these enhanced and pooled information resources. SAT Circular 25 [2015] on Special Tax Inspections for 2015 notes that tax authorities should leverage their 'Comprehensive Data Management Systems' for undertaking risk screening processes and identify key targets for further review and investigation, as well as use of web crawler technology to collect tax-related public information on taxpayers from the internet. The sophistication and capacity of these data warehousing systems will become crucial for the Chinese tax authorities in future years as the turning on of the data spigot, particularly with TIN, will demand capacity to match billions of transactions each year.

Ultimately, in this new Chinese tax administrative environment, where taxpayers are taking on greater tax responsibilities while being subject to greater tax authority scrutiny, the optimal solution for both tax authorities and taxpayers may lie in greater communication and cooperation.

Since 2008 the SAT's Large Enterprise Taxation Department (LETD) has sought to build a closer and more transparent working relationship with large taxpayers. The LETD has over the years been central to the rollout of the SAT's Tax Compliance Agreements (TCA) programme, which seeks to leverage the sound tax internal control systems of enterprises participating in the programme to minimise the need for inspection of taxpayers' tax reporting and compliance. The LETD has also been a platform for the SAT to experiment with issuance of private rulings.

These initiatives are now being taken wider. The SAT and provincial level tax authorities are planning the collective establishment of a national Risk Management Office, which will be responsible for identifying the major tax risks of different industries and for coordinating deeper liaison with large domestic enterprises and MNEs. Large domestic enterprises and MNEs are to be compelled to establish proper centralised risk management, and the large domestic enterprise and MNE risk management functions will liaise with the national Risk Management Office.

The attraction of the national Risk Management Office is seen as allowing the Chinese tax authorities to have a full picture of a large enterprise or MNE's operations across the whole country (rather than just a province-by-province view) and that it will also forestall local governments from intervening in national anti-avoidance investigations.

As noted above, the review of large enterprise TRM systems, central to the proper functioning of the national Risk Management Office approach, is becoming ever more a routine part of tax audit work (and tax self-investigation) and is set to become standard under the new guidance on Special Tax Adjustments. The SAT is also understood to be working with the State-Owned Assets Supervision and Administration Commission (SASAC), the Chinese government body overseeing many of China's SOEs, with a view to including tax risk management as part of SOEs' internal control supervision and evaluation systems. The carrot approach of offering, as with enterprises in the FTZs covered by SAT Circular 208 [2015], advance tax rulings to those taxpayers with proven internal TRM systems (detailed above) is also considered likely to be quite effective at spurring adoption of TRM systems when rulings are rolled out to the national level.

To interface optimally with the Chinese tax authorities in relation to their new TRM-focused approach, large enterprises, including MNEs, will need to consider in particular a number of TRM relevant matters:

• Determine at board level how their tax strategy aligns with their overall corporate business strategy and, if they have not done so already, establish an internal tax management department.

• Identify control points (tax risk owners) throughout the business for tax control procedures, supporting this with automation and standardisation of the procedures to the extent possible. In this regard, for the proper conduct of the control procedures the business should set up checklists of major tax risks, and establish tax manuals and protocols (in particular for effective invoice management given the roll out of the new e-invoice system).

• Tax risk communication mechanisms, which streamline information sharing and reporting flow group-wide, need to be put in place, and it needs to be ensured that the tax and finance departments share the same data, as well as the same related technology and processes.

• Finally, regular health checks of tax compliance and reporting systems, as well as post-implementation review of tax planning ideas need to be conducted, alongside evaluating the professional ethics and capabilities of tax staff.

The authors would like to thank Conrad Turley for his contribution to this chapter.

Tracy Zhang Partner, Tax KPMG China 8th Floor, Tower E2 Oriental Plaza Beijing 100738, China Tel +86 10 8508 7509 tracy.h.zhang@kpmg.com Tracy Zhang joined the KPMG Beijing office in 1996. Tracy is national leader of the tax management consulting service line. She has been seconded to KPMG Holland to study the Dutch horizontal monitoring system and has extensive knowledge of the tax risk control framework in many countries. She has led the professional team and assisted a number of state-owned enterprises to establish or improve their tax risk control systems.

Grace Xie Partner, Tax KPMG China 50th Floor, Plaza 66 1266 Nanjing West Road Shanghai 200040, China Tel: +86 21 2212 3422 grace.xie@kpmg.com Grace Xie started her career as a professional accountant in 1993 in Sydney, Australia. She joined KPMG Hong Kong in 1998 to specialise in PRC tax, moving to KPMG Shanghai in 2001. In her career as a tax consultant, Grace has rendered advice to multinational clients in a wide variety of industries, including the manufacturing, trading and service sectors. She advises clients on corporate and personal taxation and business matters relating to the establishment of business entities in the PRC, the structuring of remuneration package and ongoing operations. Grace also has extensive experience in advising multinationals on restructuring and M&A activities in China. Grace is the tax leader for the life science and healthcare sector in China. Grace is a member of Institute of Chartered Accountants in Australia and New Zealand and the Hong Kong Institute of Certified Public Accountants.

David Ling Partner, Tax KPMG China 8th Floor, Tower E2 Oriental Plaza Beijing 100738, China Tel: +86 10 8508 7083 david.ling@kpmg.com David Ling is the tax partner in charge of KPMG in Northern China and is based in Beijing. He is a China tax specialist for the industrial and consumer markets sectors. David also leads the China tax controversy and resolution practice. David joined an international accounting firm in the US in 1992 after he obtained his master's degree in US taxation. He transferred to China in 1993 and has worked in Hong Kong, Shenzhen, Shanghai and mainly Beijing. He became a tax partner in 2002 and joined the KPMG Beijing office the same year. David has extensive experience in China tax planning and tax negotiation with counterparties. His expertise includes advising foreign companies in establishing operations in China,. He has also accumulated years of experience in assisting multinational clients from various industry sectors to operate in China. David has extensive knowledge of the PRC customs regulations, foreign exchange control policies and other regulations which may affect foreign companies' operations in China. In addition to his connections with the tax authorities at central and local levels, David also has long-time relationships with various PRC authorities including the Ministry of Commerce, the State Administration for Industry and Commerce, the State Administration for Foreign Exchange, Customs as well as the tax authorities at both central and local levels. He is also the industry faculty member for the graduate study program of the People's University, one of the top universities with the tax programme.

Karmen Yeung Partner, Tax KPMG China 8th Floor, Prince's Building 10 Chater Road Central, Hong Kong Tel: +852 2143 8753 karmen.yeung@kpmg.com Karmen Yeung has extensive experience of providing various PRC corporate and individual tax advisory to foreign investment enterprises in the PRC. She has advised Hong Kong companies and multinational corporations on structuring their investments in China and establishing tax-efficient supply chain models. In particular, she advises companies on the form of investment, corporate restructuring and design of tax-efficient supply chain models from sourcing and manufacturing to distribution and retailing in China, from the corporate income tax, transfer pricing, value added tax and customs duty perspectives. Karmen is a fellow of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants. She is president of the Taxation Institute of Hong Kong, a council member of the Institute of Accountants Exchange, a co-opted member of the General Committee of Federation of Hong Kong Industries and a certified tax adviser in Hong Kong.