What is the special tax investigation
If the Chinese tax authorities suspect that the taxpayer has made tax avoidance arrangements in the transaction, for examples, abuse of tax preferences, tax treaties, corporate forms, tax havens, and other arrangements without reasonable commercial purposes, they can undertake special tax investigation against the taxpayer based on the substance over form principle.
During the special tax investigation, tax authorities will comprehensively assess the form and substance of the arrangement, its timing and execution period, implementation method, interrelationships between various components, financial changes for all involved parties, and resultant tax implications.
When tax authorities identify specific tax avoidance arrangement, they will reclassify the economic substance, nullify the tax benefits gained by the enterprise and charge additional late payment interest.
Suggestions for Dealing with Special Tax Investigations
Firstly, cooperation and transparent communication with tax authorities are crucial. Demonstrating a willingness to comply can create a more favorable environment.
Secondly, seeking the assistance of professional tax advisors or consultants can be highly beneficial. These experts can provide valuable insights into the investigation process, help with document preparation, and ensure that the business's tax affairs are in order.
