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Brief Introduction on China’s Tax Inspection

Based on the guidance of “control tax by invoices”, Chinese State Administration of Tax embarked on constructing the national tax information system in 1994, which covered all levels of tax bureau and all kinds of taxes. Up till now, the system has been run around 3 years and become an important tool for analysis of tax crimes. For more details please refer to below Q&A.

Who are the subjects of tax inspection?
In general terms, there are 4 methods to identify the subject of tax inspection:
  1. Random check: The database of tax bureau has the information of all registered enterprises, whom will be randomly selected from the system for investigation.
  2. Public tip-offs: Units and individuals can report tax crimes to tax bureau through correspondence, phone call, fax, internet and on-site visit, etc.
  3. Analysis: If the tax bureau conduct analysis through the system and find out the operating data of some enterprises is abnormal, the probability of being investigated for this kind of enterprises will increase greatly.
  4. Relevance: The inspection cases may be transferred from other administration departments.

Who will proceed tax inspection?
Only the tax inspectors with inspection permit can proceed tax inspection.

When the inspection will be conducted?
Usually the inspection will be proceeded from May to December every year, not a fixed date. However, the inspection may be conducted in anytime if enterprises have below problems:
  • The amount of invoice increased significantly;
  • Compared with the previous month, the change rate of tax burden is more than plus or minus 30%;
  • The proportion of the enterprise's advance collection accounts is more than 20% of the sales revenue, etc.

How do tax authorities conduct inspection?
The inspectors perform duties through on-site check, inquiry, taking away original documents, checking accounting vouchers and blank/original invoices, investigating electronic information system and bank accounts, etc.

How can enterprises cope with the inspection?
Enterprises shall comply with China’s tax law and improve risk management for long development.
  • If enterprises received Notice of Tax Inspection, they need to go over the business process very carefully according to questions raised by the tax bureau;
  • The accounting staff must provide data such as accounting vouchers and financial statements with full cooperation;
  • Enterprises are required to inform the inspectors of actual operation status, they can communicate with the inspectors initiatively if there are any queries about tax policies.