A bilateral consultation was held with China over the impact on international shipping firms of the extension of Chinese value added tax to cover shipping services on August 1, 2013, on the basis of Circular 37/2013.

Commissioner William Doyle of the US Federal Maritime Commission (FMC) provided an update on December 11, 2013, that during these consultations the US delegation highlighted that foreign shipping companies were newly subject to a 6 percent tax on freight collected; an increase in the tax burden for foreign businesses in China. The US delegation have also pointed out that there are no complaints about China’s transition from a business tax to a VAT, but that the United States “has questions as to the fair application of the tax with regard to international maritime transportation.”

The US delegation also expressed the business community’s desire for clarity and certainty with respect to the VAT. In this regard, the business community is interested in learning more about potential refunds if there is an overpayment of taxes; and their concern over any consequences of an inadvertent underpayment of taxes and the possible penalties that they may incur as a result.”

The Chinese representatives committed to continue working with the State Administration of Taxation and other government agencies within China in order to seek more guidance and clarity on the VAT. The US delegation committed that the FMC would work with the appropriate US agencies, private sector interests and representatives of China with the goal of securing more guidance and clarity in this regard.