New tax collection and administration law to be enacted - Trends in tax collection and administration reform

published on 20 June 2025 | reading time approx. 5 minutes

On 28 March 2025, the Chinese Ministry of Finance and the State Administration of Taxation jointly issued the “Draft Amendment to the Tax Collection and Administration Law of the People's Republic of China” (the “Draft Amendment”). Since the most recent revision of the Tax Collection and Administration Law in 2015, China's tax collection and administration environment has undergone tremendous changes with the rapid development of the digital economy and the transformation of the commercial system.

The Draft Amendment is based on the current socio-economic environment in China and focuses on compliance and efficient tax administration, proposing a series of tax administration reforms with long-term practical significance. This article selects the most noteworthy points for brief discussion.

Administration with compliance: consistency with regulations in other areas

1. Extension of Anti-Tax Avoidance Provisions

Article 36 in the Draft Amendment expands the scope of application of anti-tax avoidance measures from between enterprises to between enterprises and individuals, and even between individuals.

Article 40 of the draft provisions adds the provision that “Where a taxpayer enters into an arrangement that lacks a reasonable commercial purpose and thereby reduces, exempts, or defers the payment of taxes, or increases or advances the refund of taxes, the tax authorities have the right to make reasonable adjustments”.

The introduction of “reasonable commercial purpose” aligns with substantive tax law and provides procedural law support for tax administration, i.e. the Corporate Income Tax Law states, “Where an enterprise implements other arrangements without a reasonable commercial purpose to reduce its taxable income or taxable profits, the tax authorities have the right to adjust such arrangements using reasonable methods” and the Individual Income Tax Law states, “Where an individual implements other arrangements without a reasonable commercial purpose to obtain improper tax benefits, the tax authorities have the right to adjust such arrangements using reasonable methods”.

2. “Late payment fee” is proposed to be changed to “tax late payment interest”

The Draft Amendment proposes to replace the “late payment fee” previously stipulated with “tax late payment interest” with the calculation method remaining the same “adding 0.05 percent of the overdue tax amount per day”.

It is constrained by the provisions of the Administrative Compulsory Law that the late payment fee imposed does not exceed the total amount overdue with the provisions that “where an administrative agency lawfully makes an administrative decision imposing a monetary payment obligation, and the party fails to fulfill it by the due date, the administrative agency may lawfully impose a fine or late payment fee” and “the amount of fines or late payment fees imposed shall not exceed the amount of the monetary obligation”. However, in current practice, tax authorities frequently impose late payment fees that exceed the amount of overdue taxes.

The Draft Amendment avoids the original term “late payment fee” and instead uses “tax late payment interest” which may be an attempt to address the legal shortcomings arising from this tax administration practice.

3. Treatment under Tax Administration and Collection regarding the Doctrine of Piercing the Corporate Veil under the Company Law

The Company Law provides that, “where a company's shareholders abuse the company's independent legal personality and the limited liability of shareholders to evade debts and seriously harm the interests of the company's creditors, they shall bear joint and several liability for the company's debts”.

In the field of tax administration, tax authorities can also be broadly regarded as creditors of the company. In the past, there was a common belief that if a company failed to pay taxes in compliance with regulations, as long as the company completed tax settlement and was dissolved, the shareholders would no longer need to worry about being pursued for unpaid taxes.

However, the Draft Amendment innovatively introduces the principle of piercing the corporate veil from the Company Law for the first time, stating that “if the contributors of a taxpayer abuse the independent legal personality of the company and the limited liability of contributors, and uses means such as withdrawing funds or dissolution to prevent tax authorities from collecting unpaid or underpaid taxes or refunding overpaid taxes, and the circumstances are serious, the tax authorities shall pursue the taxpayers for the taxes, tax arrears, and late payment penalties”. This provision introduces, under special circumstances, joint liability of the shareholders for the company's limited liability regarding tax payments, further strengthening tax administration measures.

4. Specify the information reporting obligations of e-commerce platforms and strengthen tax administration in the digital economy

The Draft Amendment on strengthening tax administration in the digital economy requires e-commerce platform operators and other online transaction platform operators to submit the identity information and tax-related information of operators within their platforms to the tax authorities within the specified time limit and in accordance with the prescribed list. They must also handle tax-related matters such as tax filing for operators and employees within their platforms in accordance with relevant regulations. This requirement aims to use platform operators as a starting point to fill gaps in tax administration procedures for the digital economy.

Efficient Administration: comprehensive use of big data tools while protecting taxpayer rights

1. Application of modern information technology and big data in multiple dimensions to improve tax administration efficiency and reduce tax collection burden

The Draft Amendment fully considers the application of big data in multiple dimensions, stipulating that tax authorities may obtain taxpayer information from departments such as public security, finance, and customs, and requiring strict confidentiality. On the one hand, this provision will reduce the costs associated with duplicate submission of taxpayer information. On the other hand, Article 38 of the Draft Amendment stipulates that tax authorities may not only use information reported by taxpayers themselves, but also comprehensively utilize “third-party information obtained in accordance with the law” for comparison and risk analysis. This will enable tax authorities to conduct tax administration more accurately, thereby improving tax collection efficiency.

2. Abolish tax payment as precondition for filing an administrative review

Under the current tax administration law, when disputes arise between taxpayers and tax authorities, taxpayers must first pay or remit taxes and late payment fee in accordance with the tax authority's tax assessment decision or provide corresponding guarantees before they can legally apply for an administrative review. The Draft Amendment removes the precondition for taxpayers to pay taxes before filing an administrative review, which means that taxpayers can directly file an administrative review, avoiding capital occupation and significantly protecting taxpayers' rights and interests.

3. Strengthening supervision over tax-related professional service institutions and individuals

In line with the Measures for the Administration of Tax-Related Professional Services (Trial), which came into effect on 1 May 2025, the Draft Amendment adds that “It is encouraged that tax-related professional service institutions to conduct tax agency services in accordance with the law, and tax authorities shall strengthen supervision over tax-related professional service institutions and individuals engaged in tax-related professional services”, thereby strengthening tax administration while also protecting the rights and interests of taxpayers.

The public consultation period for the draft tax administration law ended on 27 April 2025. We look forward to the promulgation of the new tax administration law and will continue to follow any changes to its key provisions and the subsequent supporting regulations and share more details with you.