China signs pact to enhance worldwide taxation cooperation

A view of Taikoo Li Sanlitun, the bustling zone of Beijing, July 15, 2015. [Photo/IC]

China signed an agreement on Thursday on the exchange of country-by-country reports by multinationals, as the international community steps up efforts to tackle tax avoidance and evasion.

Wang Jun, commissioner of the State Administration of Taxation, signed the agreement during the 10th meeting of the Organisation for Economic Co-operation and Development Forum on Tax Administration, which ended on Thursday in Beijing.

According to the OECD, a multilateral agency that has taken a leading role in reshaping international taxation rules－an effort known as the Base Erosion and Profit Shifting project－39 jurisdictions have signed the agreement. Base erosion is a term referring to the effects of corporate tax avoidance.

Transfer pricing, which occurs when companies within a multinational group trade with each other, becomes a problem when the prices are manipulated to minimize tax bills.

The agreement, developed as a tool to enhance tax transparency, will enable global collaboration on tax issues and facilitate efforts to fight cross-border tax avoidance.

Signing the agreement is a step by the Chinese tax authority to "crack down on cross-border tax evasion and tax avoidance", according to a statement by the State Administration of Taxation.

"It also shows China's commitment to implementing international tax rules."

Wang said on Wednesday that China will boost its efforts in fighting international tax avoidance and evasion through global cooperation.

Multinationals have been accused of exploiting gaps in tax rules to artificially shift profits to low- or no-tax locations where there is little or no economic activity.

The OECD believes that the resulting revenue losses to national treasuries have grown to as much as $240 billion a year, or 10 percent of global corporate income-tax receipts－an estimate it considers to be conservative.

To tackle the problem, China has established bilateral cooperative relationships with 115 countries and regions by signing tax treaties or agreements as well as agreements on information exchanges, Wang said.