Yes. China operates a unified business and tax registration system under the “multi-certificate in one, one license and one code” regime. Enterprises, individual industrial and commercial households, and public institutions engaged in production or business activities, and other relevant entities are deemed to have completed their tax registration upon obtaining a business license bearing a unified social credit code (USCC). The tax authorities no longer issue a separate tax registration certificate; and the business license could be used in place of a tax registration certificate.

After obtaining the license, the taxpayer is required to confirm the registration information and complete the relevant tax-type determination procedures, either through the electronic tax bureau or a tax service hall when handling tax-related matters for the first time.

Special requirements apply to branches and business premises located outside the enterprise’s place of registration, as well as to non-resident enterprises undertaking construction projects or providing services in China. Individuals are generally not required to register for tax purposes, except for individual industrial and commercial households. Withholding agents are required to complete withholding tax registration.

As regards registration for specific tax types, no separate registrations are required for corporate income tax (CIT) and value-added tax (VAT). During the “tax-type determination” procedure, the tax authority determines all applicable tax types based on the taxpayer’s scope of business activities, including CIT, VAT, stamp duty, etc. The taxpayer’s USCC serves as its tax identification number for the purposes of tax filing and administration across different tax types.

It should be noted, however, that general VAT taxpayer status is subject to a registration (rather than approval) regime. Where a taxpayer’s annual VAT-taxable sales exceed the prescribed thresholds for small-scale VAT taxpayers, the taxpayer is required to register as a general VAT taxpayer with the competent tax authority, subject to statutory exceptions. This is a separate procedure under VAT administration regime, and is distinct from tax registration itself. It does not, however, entail any separate registration for CIT purposes.

Chinese tax administration is based on taxpayers filing tax returns and paying taxes on a self-assessment basis, subject to post-filing risk management and compliance reviews by tax authorities.

China’s Tax Collection and Administration Law (TCAL) does not establish a uniform, generally applicable and independent tax-assessment procedure. Under the accounting-based taxation method, the taxpayer computes, files and pays the tax itself within the prescribed deadlines once a tax liability arises under substantive tax law. The tax return forms the basis for determining the amount due, and the tax authorities generally do not conduct pre-filing reviews or issue a formal assessment notice before payment.

However, tax returns do not conclusively determine the tax liabilities. The tax authorities may recover underpaid taxes, make adjustments or assess tax liabilities in prescribed circumstances. They also conduct risk screening relying on information systems such as Golden Tax Phase IV, and may subject high-risk taxpayers to interviews, on-site inspections, tax inspections or tax investigations.

In effect, it approximates a self-assessment regime, with taxpayers declaring and paying taxes subject to post-filing review and adjustment. Conceptually, however, there is generally no uniform, pre-filing formal tax-assessment decision serving as the legal basis for payment, except in circumstances where the tax authorities are empowered by law to determine the amount of tax payable. Such circumstances principally arise where specific statutory conditions are met, in which case the tax authorities may determine a taxpayer’s tax liability in advance in accordance with prescribed procedures and methods. Once the taxpayer has calculated and paid the tax in accordance with the assessment method determined by the tax authorities, the taxpayer is generally regarded as having duly discharged its tax obligations, without being subject to further adjustment.

Yes. Taxpayers may amend previously filed tax returns. There is no uniform statutory deadline for filing amended returns. However, claims for refunds of overpaid tax are subject to a three-year time limit. For underpaid tax, the law provides for a three- or five-year recovery period, with no time limit in cases of tax evasion. A separate five-year limitation period applies to administrative penalties. However, these time limits do not prevent taxpayers from voluntarily amending their returns and paying any outstanding tax and late payment surcharges, regardless of when the original returns were filed. In practice, amended filings may also be subject to the operational rules of the electronic tax bureau.

(1) Within the statutory filing period, provided that no tax has been paid and no tax payment certificate has been issued, taxpayers may generally void the original return and file a new one, without incurring late payment surcharges or penalties.

(2) After the filing deadline, or where tax has already been paid or a payment certificate issued, the original return generally cannot be voided and only an amended filing is possible. Where no return was previously filed, a supplementary return must be submitted. If the amended filing reveals an underpayment, a late payment surcharge of 0.05% per day generally applies from the date the tax became overdue, except where statutory exemptions apply, such as where the underpayment is attributable to the tax authority. For overpayments, the taxpayer may claim a refund, together with interest, within three years from the date of settlement and payment.

(3) Voluntary amendments and payment of outstanding tax and late payment surcharges do not automatically exempt taxpayers from administrative liability, but may be taken into account as mitigating factors or grounds for reduced or waived penalties. Where tax evasion has occurred, subsequent payment does not alter the legal characterisation of the original violation.

(4) Taxpayers who fail to file returns despite being notified by the tax authorities, or who submit false returns resulting in unpaid or underpaid tax, may be deemed to have committed tax evasion and face administrative penalties or even criminal liability.

The main methods by which the Chinese tax authorities may challenge a taxpayer’s declared tax liability include:

(1) Risk alerts and tax assessments. The tax authorities conduct risk screening and cross-checks using the Golden Tax Phase IV system, third-party data and information obtained through the Common Reporting Standard (CRS). Taxpayers may be requested to provide explanations, amend their returns, or pay additional tax and late payment surcharges. Tax assessments of this kind generally do not constitute formal administrative enforcement decisions. Cases involving suspected tax evasion or other tax violations must be referred to the tax investigation authorities.

(2) Tax audit, comprising routine tax inspections and formal tax investigation:

• Routine tax inspections: The competent tax authorities may examine taxpayers’ accounting books, supporting documents, financial statements, business premises and goods. Tax officers must present their tax inspection identification cards and formal inspection notices in accordance with the law.
• Formal tax investigations: Tax Investigation Bureaus handle cases involving suspected tax offences, including tax evasion, evasion of recovery of tax arrears, fraudulent claims for export tax refunds and other tax benefits and resistance to tax collection. Cases proceed through case selection, inspection, review and enforcement. Decisions on tax treatment or penalties, or findings of no violation, should generally be issued within 90 days of case initiation, subject to approved extensions for complex cases. Compared with routine tax inspections, tax investigations involve broader enforcement powers, including obtaining accounting records, conducting interviews, examining bank accounts, and imposing tax preservation and compulsory enforcement measures.

(3) Special tax adjustments. Where related-party transactions do not comply with the arm’s length principle, or where an enterprise enters into arrangements lacking a reasonable commercial purpose that reduce its taxable revenue or income, the tax authorities may make special tax adjustments under dedicated anti-avoidance procedures. Such adjustments may extend back up to ten years, with interest charged on additional tax payable.

(4) Assessment of tax liabilities by the tax authorities (Assessment Method). Under Article 35 of the TCAL, the tax authorities may determine the tax payable where statutory conditions are met, including failure to maintain required accounting books, disorganised accounting records, failure to file returns by the prescribed deadline, or declaring a tax base that is manifestly low without justifiable reasons.

Grounds for initiating a challenge:

• Risk alerts and tax assessments may be based on risk indicators, industry analysis, whistle-blower reports or targeted programmes. Specific evidence of a tax violation is not required in every case, although such measures must not be initiated arbitrarily.
• Routine tax inspections must be conducted within statutory powers and in accordance with prescribed procedures.
• Formal tax investigations require case initiation and are generally based on indications of potential tax violations.
• Special tax adjustments must satisfy the statutory anti-avoidance conditions.
• Assessment method under Article 35 of the TCAL must satisfy the statutory conditions.

Overall, except for risk alerts and tax assessments, formal measures challenging a taxpayer’s declared tax liability must have a statutory basis, be undertaken within the relevant authority’s powers and comply with applicable procedures. However, not all such measures require prior evidence of a specific tax violation.

The time limits for recovering unpaid or underpaid tax are mainly set out in Article 52 of the TCAL and Articles 82 and 83 of its Implementing Rules. The applicable limitation period depends on the cause of the underpayment:

(1) Where tax is unpaid or underpaid due to defaults by the tax authorities, they may require payment of the outstanding tax within three years, without imposing late payment surcharges.

(2) Where underpayment is due to computational errors or similar mistakes by the taxpayer or withholding agent, the tax authorities may recover the outstanding tax, together with late payment surcharges, within three years. This period may be extended to five years where the cumulative underpayment exceeds RMB 100,000.

(3) Where the taxpayer fails to file a return, resulting in unpaid or underpaid tax, but the conduct does not constitute tax evasion, the recovery period is generally three years, extendable to five years in special circumstances where the cumulative amount exceeds RMB 100,000.

(4) No three- or five-year limitation period applies to the recovery of tax, late payment surcharges or fraudulently obtained tax refunds in cases of tax evasion, resistance to tax collection, fraudulent claims for export tax refunds and other tax benefits, or outstanding tax arrears that have already been declared or identified by the tax authorities.

(5) The tax authorities may make special tax adjustments within 10 years from the tax year in which the relevant transaction occurred, with interest charged on any additional tax payable.

In practice, several aspects of these limitation periods remain contentious:

First, the commencement and expiry of the limitation period. Article 83 of the Implementing Rules provides that the period for recovering back tax and surcharge runs from the date on which the tax should have been paid. However, the law does not specify the “end point”—i.e., by what date the authorities must commence recovery to avoid the period expiring. In practice, several views coexist:

• The date on which a Tax Inspection Notice is served on the taxpayer;
• The date on which the authorities “discover” indications of unpaid or underpaid tax; or
• The date on which a formal tax treatment decision is issued.

Tax authorities and courts across different regions have not adopted a uniform approach, making this a frequent flashpoint between taxpayers and the tax authorities.

Second, the scope of “computational errors or similar mistakes”. Implementing Rules defines such errors as unintentional errors in applying calculation formulae or obvious clerical errors. In practice, disputes frequently arise over whether underpayments resulting from a taxpayer’s misunderstanding of tax policies or incorrect determination of the tax treatment of a contract fall within this category. Some tax authorities tend to characterise such cases as the filing of false tax returns, thereby treating them as tax evasion subject to unlimited recovery. Taxpayers, however, may argue that such errors do not constitute tax evasion, in the absence of the requisite intent or conduct, and should therefore be subject to the three- or five-year limitation period.

Third, the distinction between “failure to file a tax return” and “refusal to file after being notified”. Failure to file under Article 64(2) of TCAL is subject to a three- or five-year recovery period, whereas refusal to file after being notified, which falls within the scope of tax evasion under Article 63 of the TCAL, is subject to unlimited recovery and tax-evasion penalties. The key distinction lies in whether the tax authorities have notified the taxpayer to file. In practice, disputes often concern whether notification through the electronic tax bureau, filing reminders, or on-site service constitute valid and effective notice.

Recovery after expiry of the limitation period

Except for cases involving tax evasion, resistance to tax collection, fraudulent claims for export tax refunds and other tax benefits or previously identified tax arrears, which are subject to unlimited recovery, the prevailing view is that the tax authorities are generally barred from recovering tax once the applicable three- or five-year limitation period has expired. The authorities may, however, still address the matter indirectly by:

(1) Accepting tax payments voluntarily made by the taxpayer following a self-review and imposing late payment surcharges;

(2) Making anti-avoidance adjustments within the 10-year period applicable to special-adjustment; or

(3) Adjusting tax liabilities for the relevant tax years through mutual agreement procedures under applicable tax treaties or bilateral consultations.

Chinese tax law and criminal law do not provide a single definition that precisely corresponds to the term “tax fraud”. The concept can be understood in both a narrow and a broader sense.

(1) Tax fraud in the narrow sense: tax evasion and export tax refund fraud

Tax evasion:

• Under Article 63 of the TCAL, tax evasion occurs where a taxpayer fails to pay or underpays tax by forging, altering, concealing or destroying accounting books or records without authorisation; overstating expenses or omitting or understating income in accounting records; refusing to file a tax return after being notified by the tax authorities; or filing a false tax return.
• At the criminal law level, the 2024 Judicial Interpretation on the Application of Law in Criminal Cases Involving Offences Against Tax Collection and Administration, issued jointly by the Supreme People’s Court and the Supreme People’s Procuratorate, further specifies the relevant conduct, including:
• Forging, altering, concealing or destroying accounting books or records without authorisation;
• Concealing or splitting income through dual contracts or similar arrangements;
• Falsely claiming expenses, input VAT credits or special additional deductions;
• Obtaining tax incentives through false documentation; and
• Fabricating false tax assessment bases.

Export tax refund fraud:

• Under Article 66 of TCAL, obtaining export tax refunds through false export declarations or other fraudulent means constitutes export tax refund fraud. The 2024 judicial interpretation further clarifies that such conduct includes claiming refunds using falsely issued or illegally purchased special VAT invoices or other invoices eligible for export tax refunds, declaring untaxed or tax-exempt export transactions as taxed exports; and claiming refunds by misappropriating another party’s export transactions.

(2) Other serious tax offences comparable to tax fraud

In addition to tax evasion and export tax refund fraud, the following offences are comparable in seriousness and punishability and are also subject to strict enforcement:

• Evasion of recovery of tax arrears: A taxpayer who owes tax transfers or conceals assets to obstruct the tax authorities’ recovery of outstanding tax.
• Resistance to tax collection: Refusing to pay tax by violent or threatening means.
• Falsely invoicing: This includes falsely issuing special VAT invoices, invoices used to obtain export tax refunds or claim tax deductions, and ordinary invoices. Notably, under the 2024 Judicial Interpretation, the false issuance of special VAT invoices for purposes such as inflating business performance or obtaining financing or loans does not constitute the criminal offence of falsely issuing special VAT invoices, provided there is no intention to fraudulently claim tax deductions or credits and no tax loss results from such claims.

Unless otherwise stated, “tax fraud” in the following questions is used in its narrow sense, referring to tax evasion and export tax refund fraud.

Tax evasion, export tax refund fraud and other tax offences may give rise to both administrative and criminal liability, with administrative action generally preceding criminal procedures.

(1) Administrative treatment

For tax evasion, the tax authorities may recover unpaid or underpaid taxes and late payment surcharges, and impose a fine ranging from 50% to five times the unpaid or underpaid amount. For export tax refund fraud, the tax authorities may recover the fraudulently obtained refunds and impose a fine ranging from one to five times the amount involved. They may also suspend the taxpayer’s entitlement to export tax refunds for a prescribed period. Late payment surcharges accrue at 0.05% per day on overdue tax.

(2) Criminal referral and investigation

Criminal investigations into tax offences are conducted by the public security organs, not the tax authorities. Where suspected criminal conduct is identified during a tax investigation, the tax authorities refer the case to the public security organs. The public security organs then review the case and decide whether to formally open a criminal investigation. Relevant offences include tax evasion, export tax refund fraud, resistance to tax collection and falsely issuing special VAT invoices.

Notably, Article 201 of the Criminal Law provides a specific exemption from criminal liability for tax evasion. Where a taxpayer, following a formal tax recovery notice, pays the outstanding tax and late payment surcharges within the prescribed period and complies with the administrative penalty decision, criminal liability will not be pursued. This exemption does not apply where the taxpayer has, within the preceding five years, received a criminal penalty for tax evasion or two or more administrative penalties for tax evasion. The 2024 Judicial Interpretation clarifies that this exemption applies only to tax evasion, not to other tax offences such as export tax refund fraud or false invoicing.

(3) Overall procedure

In practice, the process generally follows these stages:

• The tax authorities identify potential risks through routine tax administration, risk assessments or tax inspections.
• A formal tax investigation is initiated, followed by an administrative investigation.
• The tax authorities issue tax treatment decisions for the recovery of unpaid tax and late payment surcharges, and administrative penalty decisions imposing fines.
• Taxpayers may seek administrative reconsideration or initiate administrative litigation within the statutory time limits.
• Where criminal conduct is suspected, the case is referred to the public security organs, either after the administrative proceedings or directly during the tax investigation. In the latter case, the tax authorities generally await the outcome of the criminal proceedings before completing the administrative process.
• The public security organs conduct the criminal investigation, the People’s Procuratorate reviews the case for prosecution, and the People’s Court conducts the trial.

The main legal framework governing tax audits comprises the provisions on tax inspections under the TCAL and its Implementing Rules, together with the Provisions on Procedures for Handling Tax Investigation Cases issued by the State Taxation Administration (STA). These rules govern audit procedures, the tax authorities’ investigative powers and their limits, and taxpayers’ rights and obligations during tax audits. For example, Article 54(6) of the TCAL requires the tax authorities to obtain approval from the director of a tax bureau at or above the county level before accessing a taxpayer’s bank account information and present an official authorisation to the relevant bank or financial institution.

More recently, the STA issued the National Benchmark for Discretion in Tax Administrative Penalties (2026 Edition) to standardise the exercise of discretion in imposing tax administrative penalties nationwide. All the above rules are publicly available.

However, internal case selection models, risk indicators, investigation techniques and verification standards are not publicly disclosed. These tools are used solely to identify potential tax risks and cannot, in themselves, serve as evidence to establish a tax violation.

Yes. Tax authorities have the power to require taxpayers to provide tax-related accounting books, vouchers, financial statements and other documents. Taxpayers may require the tax authorities to keep their business secrets and personal privacy confidential. Tax inspections must be conducted by two or more officers, who shall present their tax inspection identification cards and inspection notices, inform taxpayers of their rights and obligations, and maintain confidentiality. Where books and records of previous tax years are to be retrieved, the approval of the director of a county-level or higher tax bureau is required, and the materials must be returned in full within three months. For materials relating to the current year, the approval from the director of a tax bureau at or above the level of a city divided into districts is required, and the materials must be returned within 30 days.

With the approval from the director of a tax bureau at or above county-level, the tax authorities may enquire into taxpayers’ bank accounts in banks or other financial institutions. Enquiries into the personal savings accounts of individuals suspected of involvement in a case require approval from the director of a tax bureau at or above the level of a city divided into districts. Information obtained through such enquiries may not be used for purposes other than taxation.

Where a taxpayer under investigation uses electronic information systems for business management or accounting, the tax authorities may require access to those systems or copies consistent with the original electronic data. If the taxpayer refuses to cooperate, the tax authorities may, with approval from the director of the Tax Investigation Bureau, use technical means to inspect the systems or extract electronic data directly, provided that the original data are not damaged and the normal operation of the systems is not disrupted.

Regarding emails, existing laws and regulations do not expressly provide for a separate power to compel their production. In practice, the tax authorities do not generally seek emails as part of their routine evidence-gathering activities. However, where emails are directly relevant to the facts underlying a tax treatment and form part of the taxpayer’s electronic business management or accounting systems, the tax authorities may obtain them under the powers described above.

Evidence-gathering measures taken by the tax authorities are not generally subject to independent administrative reconsideration or litigation. However, where such measures exceed statutory powers or breach procedural requirements, and the tax authorities subsequently rely on unlawfully obtained evidence to make an adverse administrative decision, the taxpayer may challenge the legality of the evidence-gathering process through administrative reconsideration or litigation against that decision. Depending on the nature and seriousness of the procedural violations, the resulting administrative decision may ultimately be declared invalid or revoked. The rules on administrative reconsideration of the results of tax audits are set out in Q13 below.

Yes. The tax authorities have the power to investigate tax-related matters by requesting information from taxpayers, withholding agents and other relevant entities or individuals. Such parties have statutory obligations to provide accurate information and supporting evidence, and may not refuse to cooperate or conceal information.

In practice, relevant third parties generally include financial institutions (such as banks), transaction counterparties (such as customers and suppliers), online trading platforms and payment service providers. Tax authorities may obtain evidence from these third parties through inquiries, requests for contracts, invoices and payment records, or by issuing assistance requests to tax authorities in other regions of China (i.e. the competent tax authorities of the relevant third parties) to assist in the tax audit.

As with taxpayers, the business secrets and personal privacy of third parties are protected by law. However, a third party generally cannot directly challenge the tax authority’s investigative measures through administrative reconsideration or litigation. Where unlawful evidence-gathering measures result in an administrative decision that infringes a third party’s rights or interests, the third party may seek administrative reconsideration or initiate litigation as a person with a legally recognised interest in the administrative act.

A tax audit case cannot be concluded directly through a settlement agreement during the investigation stage. Upon completion of the investigation, the tax authorities should issue the relevant formal decisions or documents based on their findings. Taxpayers have the right to present their views and objections to proposed tax treatment or penalties and may request a hearing where statutory conditions are met.

During administrative reconsideration proceedings, taxpayers and the tax authorities may enter into a binding settlement agreement to the extent permitted by law. Such agreements are legally binding on both parties.

In principle, settlements are limited to matters within the tax authorities’ discretion, such as the amount of administrative penalties or the assessment of tax liabilities. However, in recent years, greater emphasis has been placed on the effective resolution of tax disputes and the role of administrative reconsideration in achieving this. As a result, the scope for reaching settlements in practice has expanded. Such settlements are often reached indirectly, rather than through formal settlement agreements, with the tax authorities withdrawing or modifying their administrative decisions and taxpayers subsequently withdrawing their applications for administrative reconsideration.

Under the Provisions on Procedures for Handling Tax Investigation Cases, tax investigation bureaus should generally issue a tax treatment or administrative penalty decision, or conclude that no tax violation has occurred, within 90 days of case initiation. For complex cases, this period may be extended by up to 90 days with the approval of the director of the tax bureau. Further extensions due to exceptional circumstances or force majeure require approval from the deputy director of the higher-level tax bureau, with the extension period determined reasonably. Certain periods, such as delays caused by taxpayers submitting information late or holding hearings, are excluded from these time limits.

It can be seen that the rules do not provide an absolutely rigid deadline for completing a tax investigation. In practice, complex cases frequently remain unresolved for more than six months. Nevertheless, the tax authorities have internal mechanisms for monitoring and expediting overdue cases.

Where an investigation is likely to result in additional tax liabilities, taxpayers are generally not eager to obtain such a result, as they should pay the disputed tax or provide a tax guarantee before seeking administrative reconsideration under the current regime.

However, some taxpayers may wish to obtain a decision promptly despite prolonged investigations. While there is no specific statutory remedy for taxpayers to urge the tax authorities to conclude an investigation, unjustified delays may have legal consequences in subsequent administrative reconsideration or litigation proceedings:

(1) Taxpayers may argue that periods of excessive delay attributable to the tax authorities should be excluded from the calculation of late payment surcharges.

(2) In certain cases, courts have treated prolonged investigations as evidence of the complexity of the underlying tax issues and ruled that, although additional tax is payable, late payment surcharges should not be imposed. The reasoning is that the law cannot reasonably expect taxpayers to apply tax law correctly to complex issues when even the tax authorities require considerable time to reach a conclusion.

(3) Failure by the tax authorities to comply with the prescribed approval procedures for extending an investigation may constitute a procedural violation.

Taxpayers have the right to challenge tax assessment decisions in court, but should first seek administrative reconsideration. Before applying for administrative reconsideration with the higher-level tax authority, taxpayers should pay the assessed tax and late payment surcharges or provide an appropriate tax guarantee (in the form of a guarantee, mortgage or pledge). If dissatisfied with the administrative reconsideration decision, taxpayers may then bring a lawsuit in a people’s court.

Where a tax guarantee is provided, the guarantee should be accepted by the tax authority that issued the tax assessment. In practice, disputes may arise over the types of assets eligible as security and the conditions and standards for accepting a tax guarantee. A refusal by the tax authority to accept a guarantee may itself be challenged separately through the administrative reconsideration or litigation.

Taxpayers who disagree with administrative penalty decisions, compulsory enforcement measures or tax preservation measures are not subject to the above requirements. They may choose either to seek the administrative reconsideration or to directly bring a lawsuit in a people’s court.

In China, administrative reconsiderations of tax assessment or penalty decisions are conducted by the higher-level tax authority, rather than a judicial body. Reviews are handled by the legal affairs department of that authority, which operates with a degree of independence from the departments responsible for tax collection and administration. The law provides various safeguards to ensure the independence of the reviewing authority and department. For example, where a tax investigation case has undergone the “major case review” procedure, jurisdiction over any subsequent administrative reconsideration is transferred one level higher.

Nevertheless, in a small number of cases, taxpayers may challenge the independence of the administrative reconsideration authority. Such concerns typically arise in two scenarios:

First, a tax assessment or penalty decision is issued by a local tax office. With increasingly stringent requirements for “administration according to law”, certain administrative decisions must undergo a legal review. Since local tax offices lack dedicated legal affairs departments, such reviews are often conducted by the legal affairs department of their supervising tax bureau. Where there is evidence that particular officials participated in both the initial legal review and the subsequent administrative reconsideration of the same case, concerns over the independence of the review process may arise.

Second, in certain complex cases that do not meet the threshold for “major case review”, a lower-level tax authority may have informally sought guidance from its higher-level authority. In some circumstances, this may also affect the independence of the subsequent administrative reconsideration.

In either scenario, where sufficient evidence exists, taxpayers may raise a timely objection to the jurisdiction during the administrative reconsideration proceedings and, if necessary, seek to have that objection upheld through administrative litigation.

For the purposes of this question, a “hearing” means a hearing held in administrative reconsideration proceedings, which differs in nature from a hearing in tax administrative penalty proceedings.

Under the current Tax Administrative Reconsideration Rules, hearings must be held in public. However, the Administrative Reconsideration Law, as amended in 2023, does not expressly state whether hearings must be public. Accordingly, the draft amendments to the Tax Administrative Reconsideration Rules released for public consultation by the STA in 2026 remove the existing provision requiring public hearings. In practice, by reference to the principle of public hearings under the Administrative Litigation Law and relevant departmental rules and local regulations (for example, the Measures for Customs Administrative Reconsideration require public hearings except where state secrets, trade secrets or personal privacy are involved), administrative reconsideration hearings are generally held in public. A record of the hearing must be prepared and serves as a basis for the administrative reconsideration decision.

Administrative reconsideration authorities are legally required to publish their decisions, except where state secrets, trade secrets or personal privacy are involved. The scope and method of publication may vary by locality, as different administrative reconsideration authorities may apply different standards.

Third parties and members of the public may obtain relevant information through the following main channels:

First, through judgments and rulings in administrative litigation. Where an administrative reconsideration decision is challenged in court, published judgments and rulings may contain information about the underlying administrative reconsideration. In administrative litigation, court hearings and judicial decisions are generally open to the public (except where state secrets, trade secrets or personal privacy are involved). In practice, however, not all judicial decisions are published online.

Second, through applications for disclosure of government information. Citizens or organizations may apply to tax authorities for access to relevant government information. The tax authority assesses each application in light of its content and the applicable rules before deciding whether to disclose the information. Information involving state secrets, trade secrets or personal privacy may lawfully be withheld. The extent and manner of disclosure may vary depending on the locality and the circumstances of the case.

Tax dispute proceedings are conducted primarily in writing at the case-acceptance stage. During the substantive examination stage, however, the procedure varies according to the remedy pursued:

Administrative reconsideration is primarily conducted through written examination. However, except where the summary procedure applies, the administrative reconsideration authority must hear the parties’ views, either in person or through channels such as the internet or telephone. An oral hearing may also be held where necessary or upon application. In major, difficult or complex cases, the administrative reconsideration authority must organise a hearing; in other cases, a hearing may be held at the taxpayer’s request or where the administrative reconsideration authority considers it necessary. At the hearing, the administrative reconsideration authority arranges for the applicant and the respondent to make oral statements.

Administrative litigation combines written and oral proceedings. As a rule, cases are heard in court, where the parties make statements, present and challenge evidence, and participate in oral argument. At the second-instance stage, if neither party raises new facts, evidence or grounds and the court considers a hearing unnecessary, it may determine the case on the written record.

The Chinese legal system does not provide for document discovery in the common-law sense, and a party has no right to demand comprehensive disclosure of relevant documents by the other party. Parties may inspect documents disclosed by the other party through procedures such as the exchange of evidence or by applying to the administrative reconsideration authority or the court for access to the case file. For documents that have not been disclosed, a party may ask the administrative reconsideration authority or the court to investigate and obtain them; the authority or court may also investigate on its own initiative.

In administrative reconsideration proceedings, the respondent must submit, within the statutory time limit, all evidence and legal bases supporting the administrative act. The applicant may inspect the respondent’s written reply, evidence and other materials, except those involving state secrets, trade secrets or personal privacy.

In administrative litigation, the defendant (i.e. the tax authority) bears the burden of proof in respect of the administrative act and must provide the evidence supporting that act and the normative documents on which it was based. The plaintiff may apply for a court order requiring the defendant to produce evidence in its possession. Where, for objective reasons, the plaintiff cannot obtain evidence independently, it may ask the court to obtain it, including evidence held by state authorities and evidence involving state secrets or trade secrets. However, neither party has an unconditional right to require the other party to disclose all relevant documents.

In administrative reconsideration proceedings, current laws and regulations do not expressly provide for the summoning of witnesses to testify. The administrative reconsideration authority may investigate and collect evidence from relevant organisations and individuals. Taxpayers may identify potential witnesses, but the administrative reconsideration authority decides whether to investigate.

In administrative litigation, a party wishing to call a witness must apply before the deadline for submitting evidence, and the court’s permission is required. In deciding whether to grant the application, the court considers the relevance and credibility of the proposed testimony and the need for the witness to testify. Where witness testimony is offered, the court must notify the witness to appear, and the witness is questioned by the judge in court.

In practice, witness appearances are uncommon in tax-related administrative reconsideration and administrative litigation. However, a witness’s failure to appear without good cause may reduce the evidential weight of their testimony.

(1) General principle: the tax authority bears the burden of proof. Under the Administrative Litigation Law and the Administrative Reconsideration Law, the defendant (or respondent) bears the burden of proof in respect of the administrative act it has taken and must provide the evidence and normative documents on which the act was based. This means that the tax authority must establish not only that its tax decision has a legal basis but also that its factual findings are supported by sufficient evidence.

(2) Dynamic shifting of the burden of proof. In individual cases, the burden of proof does not necessarily remain with the tax authority throughout; it may shift between the parties. Once the tax authority has discharged its initial evidential burden and produced evidence and its evidence establishes a prima facie case against the taxpayer, the taxpayer must produce counter-evidence to rebut it or to substantiate claims made in its own favour. If the taxpayer’s counter-evidence undermines the authority’s factual findings, the burden shifts back to the authority. For example, in a dispute over the pre-tax deduction of an enterprise’s costs and expenses, the tax authority may disallow a deduction because the supporting documents do not meet the general legal requirements. The burden then falls on the taxpayer to provide an initial explanation and evidence of the authenticity, relevance and reasonableness of those costs and expenses. Where a taxpayer provides supporting documents, such as contracts, payment records, invoices and goods receipt notes, that establish a prima facie case for the authenticity, relevance and reasonableness of the costs and expenses incurred, the burden then shifts to the tax authority to show that the costs and expenses are fictitious, unreasonable or unrelated to the enterprise’s business operations.

(3) Practical considerations. Although the law generally places the burden of proof on the tax authority, taxpayers may still have to provide explanations and supporting evidence in practice. The sufficiency and completeness of the evidence they produce can be decisive in determining the outcome of a dispute. This underscores the importance of day-to-day tax compliance and record-keeping: a taxpayer’s ability to substantiate its position in dispute proceedings often depends on evidence retained in the ordinary course of business.

Administrative reconsideration: Under the ordinary procedure, the administrative reconsideration authority must issue a decision within 60 days of accepting the application. In complex cases, this period may be extended by up to 30 days with approval. Under the summary procedure, a decision must be issued within 30 days of acceptance.

Administrative litigation, first instance: The court must deliver its first-instance judgment within six months of registering the case. An extension in exceptional circumstances requires approval from the Higher People’s Court. Cases heard under the summary procedure are tried by a single judge and must be concluded within 45 days of registration.

Administrative litigation, second instance: The court must deliver its final judgment within three months of receiving the statement of appeal. An extension in exceptional circumstances requires approval from the Higher People’s Court.

In practice, statutory time limits for administrative reconsideration are applied fairly rigidly. In administrative litigation, however, tax disputes often involve complex factual and legal issues, and court backlogs may delay both first- and second-instance proceedings. Completing administrative reconsideration followed by first- and second-instance litigation generally takes more than one year and may take considerably longer.

Where mediation or settlement takes place during administrative reconsideration or administrative litigation, the running of the above time limits is suspended. Generally, there is no fixed limit on the length of that suspension.

(1) Tax payment disputes: pay first or provide security. For tax payment disputes (i.e. challenges to the imposition or collection of tax itself), China applies both a “pay-first” requirement and a mandatory administrative reconsideration requirement. Where a taxpayer disputes a tax payment decision, it must first pay the tax and any late payment surcharges in accordance with the tax authority’s decision, or provide appropriate security, before applying for administrative reconsideration. If dissatisfied with the administrative reconsideration decision, it may then bring administrative litigation.

(2) Non-tax-payment disputes: no pay-first requirement. For disputes involving penalties, compulsory enforcement measures or tax preservation measures, taxpayers may choose either to apply for administrative reconsideration or to bring administrative litigation directly, without first paying the amounts in question.

The “pay-first” requirement applies only to tax payment disputes and does not apply to other types of tax administrative acts, such as penalties and enforcement measures.

The Standing Committee of the National People’s Congress is currently considering amendments to the TCAL. The proposed amendments are expected to remove the “pay-first” requirement for tax administrative reconsideration, allowing taxpayers to apply for administrative reconsideration without first paying the tax or providing security. However, if they proceed to administrative litigation, they would still have to pay the tax or provide security beforehand.

Taxpayers may appoint agents to represent them in tax dispute proceedings, subject to certain eligibility requirements.

Administrative reconsideration: A taxpayer may appoint one or two agents, including lawyers and grassroots legal service workers, or other agents.

Administrative litigation: A taxpayer may appoint one or two litigation representatives. In addition to lawyers and grassroots legal service workers, eligible representatives include a party’s close relatives or employees and citizens recommended by the community, work unit or relevant social organisations to which the party belongs.

In practice, given the technical nature and complexity of tax disputes, taxpayers commonly appoint lawyers with expertise in both tax and law. An enterprise’s in-house finance or tax personnel may also participate as employees of the entity, usually working alongside external counsel.

Lawyers’ fees are generally borne by each party. There is no general “loser pays” rule for legal fees in Chinese tax dispute proceedings. Each party ordinarily bears its own fees.

Court costs are borne by the losing party. Litigation costs, including case acceptance fees and application fees, are borne by the losing party. Where both parties bear responsibility, the costs are apportioned accordingly.

Exceptions: Where a party abuses its litigation rights, delays performance of its obligations or otherwise acts improperly, causing the other party direct loss, the court may award reasonable lawyers’ fees to the party not at fault. Such an award is a discretionary remedy in exceptional circumstances and is uncommon in tax-related administrative litigation.

When signing the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the BEPS MLI), China did not opt to apply its mandatory binding arbitration provisions. Tax disputes are also not subject to arbitration within the meaning of the Arbitration Law (administrative disputes that should be handled by administrative organs are not arbitrable). Mediation and settlement, as voluntary forms of alternative dispute resolution, are available, but they are subject to statutory boundaries.

• Administrative reconsideration stage: The Administrative Reconsideration Law as revised in 2023 provides that the reconsideration authority may conduct mediation in reconsideration cases, without limiting the matters eligible for mediation. In addition, the applicant and the respondent may also reach a settlement before the reconsideration authority makes a reconsideration decision. Mediation must respect the will of the applicant and the respondent, be conducted on the basis of established facts, and follow the principles of objectivity, impartiality, and reasonableness; it must not harm the public interest or the lawful rights and interests of third parties. The settlement agreement must not harm the national interest, the public interest, or the lawful rights and interests of third parties, and must not violate the mandatory provisions of laws and regulations.
• Administrative litigation stage: In principle, the people’s courts do not apply mediation when hearing administrative cases. However, mediation is permissible in cases involving administrative compensation or indemnification, and in cases where administrative organs exercise discretionary powers as stipulated by laws and regulations. Mediation must follow the principles of voluntariness and legality, and must not harm the national interest, the public interest, or the lawful rights and interests of third parties. Prior to the rendition of a judgment or ruling by a people’s court, the parties may reach a settlement on their own initiative. Where the defendant tax authority amends or partially revokes the contested administrative act in accordance with law, and the plaintiff consents thereto and applies to withdraw the lawsuit, the people’s court shall decide whether to grant such withdrawal.
• In Chinese practice, tax authorities strive to achieve substantive resolution of administrative disputes including by making greater use of mediation in accordance with law during administrative reconsideration proceedings. People’s courts also adopt mechanisms such as mediation and diversified dispute resolution. All such measures are premised on the voluntary consent of the parties and do not alter statutory remedy channels or time limits.
• Cross-border tax disputes: Taxpayers may request a mutual agreement procedure (MAP) under the applicable tax treaty, and may also agree in advance with the tax authorities on the pricing principles and methods for related-party transactions through an advance pricing arrangement (APA). Mandatory binding arbitration refers to a mechanism under which, where the competent authorities of the treaty partners are unable to reach agreement on a MAP case within a specified period (generally two years under the BEPS MLI), unresolved issues must, at the taxpayer’s request, be submitted to independent arbitration, the outcome of which is binding on both jurisdictions. As China has not adopted this mechanism, the MAP does not guarantee that a dispute will ultimately be resolved.

Yes, taxpayers have the right of onward appeal. The general process for tax dispute resolution in China is as follows:

(1) Administrative reconsideration (prerequisite procedure)

Where a taxpayer disagrees with a tax-levying act (e.g., confirmation of the taxpayer, taxable object, scope of taxation, tax reduction, tax exemption, or tax refund), the taxpayer must first apply for administrative reconsideration; only if dissatisfied with the reconsideration decision may it bring administrative litigation. Where a taxpayer disagrees with a penalty decision, compulsory enforcement measure, or tax preservation measure, it may choose either to apply for reconsideration or to directly bring administrative litigation (however, under Article 23 of the Administrative Reconsideration Law as revised in 2023, a party dissatisfied with a penalty decision made on the spot must first apply for administrative reconsideration).

The reconsideration authority is the tax authority immediately above the tax authority that made the original administrative act (for acts of an inspection bureau or a tax office (branch), reconsideration is sought from the tax bureau to which it belongs). In general, the reconsideration authority shall render a decision within 60 days from the date of acceptance; complex cases may be extended by up to 30 days upon approval.

(2) First instance of administrative litigation

Where a party is dissatisfied with the reconsideration decision, it may bring administrative litigation in the people’s court within 15 days from the date of receipt of the reconsideration decision. The first instance is generally under the jurisdiction of the basic people’s court; major and complex cases may be under the jurisdiction of an intermediate people’s court, a higher people’s court, or even the Supreme People’s Court.

The time limit for first-instance trial is six months from the date of case docketing, or 45 days under summary procedure.

(3) Second instance of administrative litigation

A party dissatisfied with a first-instance judgment has the right to appeal to the people’s court at the next higher level within 15 days from the date of service of the judgment; the appeal period for a first-instance ruling is 10 days.

Judgments and rulings rendered by the second-instance people’s court are final and take legal effect upon service. The time limit for second-instance trial is three months from the date of receipt of the appeal petition.

(4) Trial supervision procedure (retrial)

Following the second-instance final judgment, if a party believes that a legally effective judgment or ruling is indeed erroneous, it may apply for a retrial in accordance with the law, but execution of the judgment or ruling is not suspended. The retrial procedure is not a normal appellate instance but a special remedial procedure. Retrial is not a mandatory proceeding. Where a party applies for a retrial, the people’s court shall examine the application in accordance with law. A ruling to commence retrial shall be issued only where statutory circumstances exist; if the statutory requirements are not satisfied, the application shall be dismissed by ruling. Where a party applies for retrial to the people’s court at the next higher level, such application shall be filed within 6 months after the judgment or ruling takes legal effect. Enforcement of the original judgment or ruling shall not be suspended during the examination of the retrial application; where the people’s court decides to retry the case under the trial supervision procedure, it shall rule to suspend enforcement of the original judgment or ruling (except in cases involving payment of pensions, minimum living allowances or social insurance benefits).

In addition, where the people’s procuratorate finds that a legally effective judgment or ruling falls under any statutory circumstance, it may lodge a protest, thereby initiating the trial supervision procedure.

(1) Late payment surcharge

Where a taxpayer fails to pay tax within the prescribed time limit, the tax authorities shall, in addition to ordering the taxpayer to pay within a prescribed time limit, impose a daily surcharge at the rate of 0.05% of the amount of tax in arrears, commencing from the day the tax payment becomes overdue. Strictly speaking, the late payment surcharge is not an administrative penalty in nature. Instead, it is a compensatory and expediting charge collected by tax authorities for taxpayers’ occupation of State-owned tax funds. It features both compensation for the occupation of tax funds (in the nature of interest) and the nature of a coercive enforcement penalty. Therefore, it may be imposed concurrently with administrative penalties such as fines.

(2) Fines (by type of violation)

• Tax evasion: Where a taxpayer fails to pay or underpays tax by forging, altering, concealing, or destroying accounting books or vouchers without authorisation; by overstating expenses or underreporting income in the books; or by refusing to file a tax return after notification by the tax authorities or by filing a false return, the tax authorities shall pursue recovery of the unpaid or underpaid tax and late payment surcharges, and concurrently impose a fine of not less than 50% but not more than five times the amount of tax unpaid or underpaid. Where the offence constitutes a crime, criminal liability shall be pursued in accordance with the law.
• Failure to file tax returns: Where a taxpayer fails to file a return and thereby fails to pay or underpays tax, the tax authorities shall pursue recovery of the unpaid or underpaid tax and late payment surcharges, and concurrently impose a fine of not less than 50% but not more than five times the amount of tax unpaid or underpaid.
• Evading pursuit of tax arrears: Where a taxpayer that owes tax transfers or conceals property in order to obstruct the tax authorities from recovering the arrears, the tax authorities shall pursue recovery of the arrears and late payment surcharges, and concurrently impose a fine of not less than 50% but not more than five times the amount of the arrears. Where the offence constitutes a crime, criminal liability shall be pursued in accordance with the law.
• Export tax refund fraud: Where a taxpayer defrauds the State of export tax refunds by false export declarations or other deceptive means, the tax authorities shall pursue recovery of the defrauded tax refund and concurrently impose a fine of not less than one time but not more than five times the amount of the defrauded refund. Where the offence constitutes a crime, criminal liability shall be pursued in accordance with the law.
• Tax resistance: Refusal to pay tax by violent or threatening means constitutes tax resistance. In addition to pursuing recovery of the refused tax and late payment surcharges, criminal liability shall be pursued in accordance with the law. Where the circumstances are minor and do not constitute a crime, the tax authorities shall pursue recovery of the refused tax and late payment surcharges, and impose a fine of not less than one time but not more than five times the amount of tax refused.
• In addition to the foregoing major circumstances, fines are also applicable to failure to file tax returns within the prescribed time limit, inadequate accounting book management, fabrication of tax calculation bases, failure of withholding agents to perform withholding obligations, obstruction of tax inspections, as well as false issuance / illegal agency issuance of invoices.
• Besides late payment surcharges and fines, tax authorities may adopt the following measures in accordance with law: tax preservation measures and compulsory enforcement measures; notifying the exit-entry administration authorities to bar taxpayers from leaving the territory where they owe taxes, fail to settle taxes and late payment surcharges, and refuse to provide security; confiscating invoices or ceasing the issuance of invoices to them; disclosing information on subjects with serious tax-related illegalities and bad faith to the public and implementing multi-department joint disciplinary sanctions, which will affect their tax credit rating, financing, eligibility to hold certain positions and high consumption activities; downgrading their tax credit rating (e.g., taxpayers rated Grade D will face restrictions in obtaining invoices, VAT refund for excess input, export tax refunds and other respects); confiscating illegal gains; transferring cases suspected of crimes to public security organs in accordance with law for pursuit of criminal liability.

No penalty for minor violations. In accordance with the List of Tax Administrative Penalty Matters Eligible for “No Penalty for Minor Violations” (issued together with the National Benchmark for Discretion in Tax Administrative Penalties (2026 Edition) and effective from 1 November 2026), where a violation is minor and promptly corrected without causing harmful consequences, or where other statutory circumstances warranting no penalty exist, no administrative penalty shall be imposed in accordance with the law.

Statutory circumstances for a lighter or mitigated penalty: These include voluntarily eliminating or mitigating the harmful consequences of the violation; committing the violation under duress or deception; voluntarily disclosing violations not yet known to the tax authorities; and meritorious service in assisting the tax authorities in investigating and handling violations.

In addition, the following factors shall also be given key consideration: defense based on absence of subjective fault — no administrative penalty shall be imposed where a party has sufficient evidence proving absence of subjective fault (unless otherwise provided by laws or administrative regulations); no-penalty for first-time offence — where an offence is committed for the first time, causes minor harmful consequences and is rectified in a timely manner, administrative penalty may be waived; five-year statute of limitations for penalty-seeking — if an act that ought to be subject to administrative penalty under tax-related laws and administrative regulations is not discovered within five years, no administrative penalty shall be imposed; application of the principle of lex mitior (old-law-first with preference for milder provisions) — where laws, administrative regulations or rules have been amended or repealed at the time of making an administrative penalty decision, and the new provisions impose lighter penalties or do not deem the act unlawful, the new provisions shall apply; no double fines for the same act (ne bis in idem) — a party shall not be subject to two or more administrative fines for the same illegal act. Where the same illegal act violates multiple legal norms that all prescribe fines, the provision stipulating the higher fine amount shall apply; procedural safeguards — prior to rendering an administrative penalty decision such as a comparatively substantial fine, the party has the right to request a hearing. Where the party is not notified in accordance with law, or its statements and defence are refused to be heard, no administrative penalty decision may be made.

Furthermore, the State Taxation Administration issued the National Benchmark for Discretion in Tax Administrative Penalties (2026 Edition) (State Taxation Administration Announcement No. 20 of 2026) in September 2026, which shall take effect on 1 November 2026. It uniformly defines five penalty tiers: “minor, less serious, ordinary, more serious and serious”, accompanied by a checklist for “non-penalty for minor violations”. Voluntary payment of tax owed, cooperation with inspections and timely rectification are incorporated into discretionary considerations. Where regional discretionary benchmarks are inconsistent, the national benchmark shall prevail.

Invoice fraud and export tax refund fraud continue to attract enforcement attention, while individual income tax cases are gaining prominence.

Invoice fraud: Relying on the intelligent risk models of Golden Tax Phase IV, tax authorities conduct multi-dimensional cross-checks across invoice flows, fund flows, goods flows, and contract flows. They are cracking down on the fraudulent issuance of invoices for consulting fees, promotion fees, and service fees under the guise of flexible-employment platforms, deemed-profit taxation for individual businesses/sole proprietorships, and the “invoice economy,” while also pursuing liability against tax intermediaries that assist in such arrangements.

Export tax refund fraud: With continuously improving big-data regulatory capabilities, the eight-department joint enforcement mechanism involving the tax, customs and foreign exchange authorities, among others, has been further institutionalised. Key targets include false declaration of product names, over-invoicing of low-value goods, fraudulent input invoices to fabricate false input tax, and false foreign exchange settlement. False declarations in cross-border e-commerce export refunds are also under focused monitoring.

Offshore income: Relying on the CRS (Common Reporting Standard) automatic exchange of financial account information, tax authorities have obtained extensive data on offshore financial accounts held by Chinese tax residents. Since 2025, tax authorities have been continuously reminding taxpayers to self-review and file supplementary declarations on offshore income, with a focus on offshore equity incentives, dividends, interest income, offshore equity transfer gains, and business receipts collected through offshore accounts.

Offshore trusts: In July 2026, the Ministry of Finance and the State Taxation Administration issued the Announcement on Individual Income Tax Matters Concerning Offshore Trusts (MOF/STA Announcement No. 21 of 2026), which for the first time sets out tax rules covering the establishment, duration, and termination/liquidation of offshore trusts. This means that the offshore trust structures previously established by many high-net-worth individuals will face a comprehensive tax compliance review and audit risk.

Individual controlled foreign company (CFC) anti-avoidance: Where an enterprise controlled by a resident individual (or jointly by resident individuals and resident enterprises) is established in a jurisdiction with an evidently low effective tax burden and, without reasonable business need, does not distribute or reduces the distribution of profits attributable to the resident individual, the tax authorities have the right to make tax adjustments. With CRS information exchange and the data-penetration capabilities of Golden Tax Phase IV, undistributed profits held by individuals through offshore shell companies face the risk of being treated as deemed distributions, with individual income tax assessed and interest charged in accordance with law.

Industries with long-standing compliance deficiencies: For example, the legal profession faces issues including individual income tax allocation among law-firm partners, recognition of commission-based income of employed lawyers, compliance in the deduction of costs and expenses, and revenue-expenditure via personal bank accounts; the human-resource-services industry grapples with characterization of employment relationships and income splitting; the entertainment sector encounters personal income-tax matters and assessed-collection tax-method issues for celebrities, internet influencers and live-stream practitioners; technology-driven enterprises have concerns over extra tax deductions for R&D expenses and the application of preferential policies for high-and-new-technology enterprises.

Based on current tax audit practice and taxpayer feedback, the following areas present particularly acute challenges in dispute resolution:

Chain-based liability under VAT: Once an upstream issuer is audited, downstream recipients are consequently required to reverse input VAT credits and pay the unpaid or underpaid tax plus late payment surcharges. In practice, tax authorities frequently extend their inspections down the invoice chain, readily implicating dozens or even hundreds of enterprises. It is difficult for recipients to prove that they acquired the invoices in good faith.

Long-standing uncertainty in partnership taxation: Under the “first pass-through, then tax” principle for partnerships, significant disputes arise over the tax treatment of income received by individual partners—for example, the classification of income, deductions from the tax base, and loss carryforward and utilisation. These issues lack uniform and clear operational guidance, and enforcement practices vary across regions, leading to frequent tax disputes. During audits, tax authorities tend to apply the interpretation most adverse to the taxpayer.

Vague rules and exceptionally high professional barriers in cross-border transactions and anti-avoidance: Areas such as beneficial owner determination, transfer pricing for related-party transactions, and CFC rules are governed by statutory provisions that are themselves relatively general and lack detailed implementing guidance, leaving discretionary room for tax authorities and giving rise to substantial controversies in practice.

Significantly strengthened tax administration for natural-person taxpayers. Driven by data-based tax governance, the Golden Tax Phase IV system and CRS information exchange, tax authorities have greatly enhanced their capacity to obtain information on funds and income of natural-person taxpayers and their related accounts. Individuals are increasingly targeted for tax audits and supplementary tax payments. Lacking professional finance-tax teams and awareness of document retention, individuals face substantial compliance challenges given complex rules governing annual tax reconciliation, equity-incentive taxation and reporting of overseas-sourced income. Notably, new personal-income-tax rules governing offshore trusts were recently issued in 2026, whose practical enforcement interpretations are still being refined. Many high-net-worth individuals with pre-existing offshore structures are confronted with practical issues such as the tax characterization of historical periods and the determination of market value upon contribution of assets into trusts, resulting in a substantial divergence in understanding between taxpayers and tax authorities.

Rising complexity in administrative-criminal interface and procedural defences. First, administrative-criminal interface: cases involving false invoice issuance and tax evasion often proceed under both administrative and criminal frameworks, with poor alignment of evidence standards and factual findings between the two regimes. Pursuant to the Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases of Endangering Tax Collection and Administration (Fa Shi [2024] No. 4), for tax evasion, no criminal liability shall be pursued where, after the tax authorities have issued a recovery notice in accordance with law, the taxpayer fully pays the taxes due and late payment surcharges and complies with penalty decisions prior to case-filing by public security organs (except for instances where two or more administrative penalties have been imposed within five years). Nevertheless, disputes persist regarding the timing of supplementary payment and the quantification of relevant amounts. Second, procedural defences and evidence rules: there is a lack of unified standards on the impact of procedural defects such as excessive audit duration, failure of notification and denial of hearing rights upon the validity of penalty decisions; on evidential weight of electronically-obtained evidence and third-party data; as well as on allocation of burden of proof for assessed tax amounts, creating practical difficulties for taxpayers in adducing evidence.

The “pre-requirement of tax settlement (or security)” for tax-related disputes raises threshold costs for initiating administrative reconsideration in high-value tax controversies. China has not established a generally applicable advance-ruling system (only limited pilots for large-sized enterprises are available). Taxpayers cannot obtain pre-transaction certainty on tax treatment for ambiguous matters and can only mount post-hoc defences. As for the status of advance ruling pilots, the 2015 consultation draft revision of the Tax Collection and Administration Law proposed introducing advance rulings, but the proposal was not ultimately adopted. At the local level, Nansha District of Guangzhou (2020) and Dongfang in Hainan (2023), among others, made early attempts; the tax authorities of Shanghai (December 2023) and Beijing (May 2024) have issued trial measures on advance tax rulings; Shenzhen has introduced pre-transaction tax compliance assessments for cross-border matters; and cross-regional joint rulings have been explored in the Yangtze River Delta and the Guangdong-Hong Kong-Macao Greater Bay Area. These pilots mainly cover complex and significant tax matters of large enterprises, and rulings are generally positioned as a tailored taxpayer service rather than an administrative act subject to reconsideration or litigation (as expressly provided in the Beijing trial measures), so their effect and scope of application remain limited. In addition, administrative reconsideration in tax matters remains an internal procedure within the tax authority system, which may diminish tax authorities’ willingness to correct their own errors during the reconsideration stage.