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Tuesday
Oct212014

China state newspaper accuses foreign firms of tax evasion

China’s state-run newspaper People’s Daily has accused multinational companies of avoiding taxes in China and urged authorities to take measures to combat tax evasion.
 
Foreign companies have been diverting their profits to overseas branches or their parent companies in order to avoid paying taxes in China, People’s Daily said.

Liao Tizhong, the head of the international taxation department under the State Administration of Taxation, was quoted by People’s Daily as saying that the Chinese operations of multinational companies have caused social problems such as environmental pollution and abusive labor practices, thereby creating burdens on local governments. However, the foreign companies are not contributing to local tax revenues.

The anti-tax evasion investigations are not targeting foreign companies only as domestic firms are being investigated as well, Liao added.

“Taxation is at the core of national sovereignty. We have to take effective measures to stop tax revenue losses to protect the national economic interests,” the commentary said.

In May, China’s state-run newspaper Legal Daily accused the China unit of British drugmaker GlaxoSmithKline Plc of failing to pay more than 100 million yuan ($16 million) in import duties and taxes for its HIV treatment drugs.

GSK’s China unit spent its profits on purchasing pricy drugs from GSK headquarter to divert its profits to the parent company to avoid incurring corporate income taxes in China, Legal Daily said.

Sources: People’s Daily (人民日报), South China Morning Post, Bloomberg

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Hui Zhi is the Senior Manager for Content with the China Compliance Digest, where a version of this post first appeared.