Beijing to step up tax evasion campaign after US multinational firm caught

The mainland's first major case of cross-border tax evasion involving a large US multinational has been revealed by state media, with Xinhua saying Beijing would step up its fight against international tax evasion.

The Hong Kong government would be expected to assist Beijing in stepping up the fight against cross-border tax evasion, Joe Chan, a partner at accounting firm EY, said.

A US multinational had admitted tax evasion and its mainland subsidiary had agreed to pay the central government 840 million yuan (HK$1.06 billion) in back taxes and interest, as well as more than 100 million yuan in additional taxes a year in the future, Xinhua reported on Sunday.

"Because the amount involved is huge and the impact is enormous, this case has been called China's first major anti-tax evasion case," it said. "This case highlights the common tactic of multinationals to avoid tax, by transferring profits through various countries, taking advantage of differences in their tax rates."

The state news agency did not name the company, identified only as M, but said it was a "globally well-known company that has long been among the world's 500 biggest firms", headquartered in the US, and had established a wholly-owned foreign enterprise in Beijing in 1995.

US software giant Microsoft did not reply to South China Morning Post inquiries about whether it was the company involved. The Fortune 500 company set up its wholly owned China subsidiary in Beijing in 1995. In 2012, the US Senate alleged Microsoft reduced its 2011 US tax payment by US$2.43 billion by using an international network of foreign entities and loopholes in US tax law.

For six years, M accumulated losses totalling more than 2 billion yuan in China, yet its peers enjoyed a profit margin of more than 12 per cent in the Beijing market, Xinhua said. That prompted an investigation by the mainland tax authorities that found M's behaviour "unreasonable", Xinhua reported.