The Research On China's International Tax Information Exchange System

In the context of economic globalization and technological process,personnel,capital and other factors flow frequently,tax evasion has become a worldwide phenomenon.Some countries like the United States,Italy,Brazil has lost hundreds of billions of dollars.The problem of asymmetric information between countries and the lack of information on taxpayers are the key reasons for tax evasion.Therefore,tax authorities have been aware of the necessity of international cooperation between countries.International tax information exchange is one of the most important ways of tax cooperation.This paper discusses the definition,development and the latest results of the international tax information exchange system.The system is promoted by three major forces: OECD,America and European Union.The Organization for Economic Co-operation and Development(“OECD”)has made efforts to promote the exchange of international tax information.OECD,together with the Council of Europe enacted Convention on Mutual Administrative Assistance in Tax Matters in 1988.It proves to be the most efficient instrument available because it is a multilateral convention,as long as one country signs the convention,it will be able to exchange tax information with other signatories,saving the time of negotiations with each country by itself.The latest result is the automatic exchange of tax related financial account information standard.It learns from the Foreign Account Tax Compliance Act(“FATCA”),enacted by the US government,which requires financial institutions that are located outside the United States to identify account holders,perform due diligence and fulfill reporting obligations.So far,the automatic information exchange is championed by many countries and scholars.Many OECD members and non OECD members,including China have promised to implement the standard.It is expected that the automatic information exchange will be the dominating model of international cooperation in the future.Furthermore,OECD reorganized and expanded the Global Tax Forum,it also set up a peer review group to oversee the implementation of tax transparency and exchange of information between countries or regions.The work of the group is divided into two parts.The first part is the review of countries' laws and regulations and the second part is to review the implementation of tax transparency and the practice of tax information exchange.OECD plays an important role in countering tax evasion and promoting the cooperation between countries or regions.The United States enacted FATCA in 2010 and implemented in 2014.It requires all foreign entities to report America customers' accounts automatically and bear the withholding obligation.Its purpose is to ensure that offshore income of US persons is reported and to verify whether deposits made in offshore accounts are after-tax income.If a foreign entity does not comply with the Act,the US payer will withhold US tax equal to 30%.Depending on the international status and economic strength,the United States forces other countries to cooperate with it and implement FATCA extraterritorially,which originally is just domestic law.Widespread concern and discussion of the international community are caused by the strong act.FATCA provides two models of intergovernmental agreements for other countries or regions to choose.It is designed to solve the conflicts of law between the FATCA requirements and local country privacy legislation.Under Model one,foreign financial institutions report US account holders directly to their own tax authority,which provides the tax information to the Internal Revenue Service(IRS)automatically,but the premise is that there is a tax treaty or tax information exchange agreement between the two countries.Under Model two,foreign financial institutions should still report to IRS directly.Only Switzerland and Japan signed Model two intergovernmental governmental agreements.European Union has adopted many measures to deal with tax evasion and cooperate better with other countries.EU has started the exchange of tax information early,which can be traced back to 1970 s.At first,the exchange only implement among EU members.There are two kinds of legal rules on the tax information exchange.One is EU Directive,and the other is EU Regulation.Directives have guiding effects,and members are given a certain time to choose suitable forms and means to implement them.While Regulations are directly enforceable law,EU members have no choose but to implement them.In the EU,the EU Saving Directive and the Mutual Assistance Directive governs the exchange of information.The former one asks financial institutions to report the identity of the EU residents who receive interest payments and to exchange it in an annual basis with the respective residence country.However,the limitation is that it only applies to the financial institutions in Europe.Taxpayers can easily transfer their bank accounts to tax haven countries like Switzerland to achieve the purpose of tax evasion.EU realized the problem,then,it negotiated with Switzerland,Andorra,San Marino,Liechtenstein and Monaco and finally signed a tax transparency agreement with them.The Mutual Assistance Directive was revised and formally implemented on January,2015.It extends the scope of the original tax information exchange,and requires financial institutions to performance due diligence and reporting obligations in accordance with the OECD common reporting standard.EU has done a good job in international tax information exchange system.China is one of the largest destination for foreign investment and also becomes a major outbound investor.The phenomenon of tax evasion has been more and more common.Our government need to cooperate with other countries to get adequate tax information of tax payers so that it can prevent the loss of tax revenue.China started the exchange of tax information very late and it developed slowly at the beginning.The turning point was in 2004,we broke the history of zero information exchange request,issued eighteen specific requests for tax information.It was a great improvement for China,because we just accepted other countries' different kinds of information exchange requests,and did not share the profit of the information exchange system.China participates in the international tax cooperation quite actively,it signed the Convention on Mutual Administrative Assistance in Tax Matters and promised to implement OECD common reporting standard too.So far,China has officially signed 102 avoidance of double taxation agreements and passed the peer review with high standard.But there are still some legal and practical problems in China's international tax information exchange system.The legal basis for the exchange of tax information is still the International Tax Information Exchange Rules,which was enacted by the State Administration of Taxation in 2006.Its hierarchy is lower than law.Furthermore,China lacks efficient information exchange mechanism.The whole information exchange cycle usually lasts for nearly a year,lead to the invalid information.Firstly,this paper studies on the developing trend of the tax information exchange system.And next,it discusses the successful experience of the United States and the European Union in law making and practice.Then,it finds the problems in China's information exchange system.Finally,the paper tries to explore ways to improve China's present system.