Commissioner William P. Doyle Reports on U.S.-China Bilateral Maritime Consultation Meeting and Follow-Up

Contact: David J. Tubman, Jr., Counsel to Commissioner Doyle

• the Chinese desire to establish a mutual NVOCC legal assistance mechanism and mutual bond rider recognition mechanism,
• Chinese concern regarding taxes imposed upon foreign invested terminals in the U.S., and
• the U.S. concern over the application of China’s New VAT Tax.

China’s New Value Added Tax (VAT)

China’s delegation provided the U.S. delegation with an overview of the new Value Added Tax. It was noted that based on this new regulation, foreign shipping companies would pay a 6% tax on freight collected. That is, there is an increase in the tax burden for foreign shipping companies in China.

As a result of concerns raised by the wider international shipping community to China’s Ministry of Transport (MOT), MOT is working with the Shanghai Shipping Exchange and others in the government to address this matter.

Mr. Li Hongyin noted that in September the MOT sent a formal letter to the State Administration of Taxation (SAT) to resolve the issue. Mr. Li Hongyin also stated that MOT officials have been in contact with SAT by telephone. Mr. Li Hongyin committed that upon his return to China, he will further discuss this matter with SAT.

I 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.

I raised the concern that United States interests should be treated fairly under the PRC’s new VAT tax regime. I 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 may incur as a result.

The PRC representatives listened to our concerns and committed to continue working with the SAT and other government agencies within China in order to seek more guidance and clarity on the VAT. I committed that the FMC would work with the appropriate U.S.-agencies, private sector interests and representatives of China with the goal of securing more guidance and clarity in this regard.

To this end, my office is spearheading communications between U.S.-agencies and the private sector on one end, gathering information, while the State Department through its officials here in DC, the U.S Embassy in Beijing, and the U.S. Consulate, Shanghai channels this information we gather through the appropriate PRC agencies.

Recently, in the cooperation with the U.S. Consulate in Shanghai, we came up with a plan to seek information from U.S. companies on their experiences with the new VAT. This information would ultimately be shared with the Shanghai Bureau of Taxation and other PRC agencies. My office has been canvasing representatives of the carrier and shipper communities and other stakeholders who contacted the FMC on this matter.

Last week the carrier community conveyed to my office that one of its companies had been informed that the Chinese government was likely to issue a circular on the VAT changing or clarifying its application with respect to international shipping.

I directed my office to share that information with FMC’s counterparts at the U.S. State Department here in the U.S. and in China.

Accordingly, the U.S. Consulate, Shanghai contacted the Shanghai International Shipping Institute (SISI) and SISI reported that shipping companies have been raising concerns over the application of the VAT. The Consulate also spoke with the Shanghai Shipping Exchange (SSE) who said that the information may be based on a recent announcement at a SSE-sponsored shipping conference.  At the conference, MOT Water Transport Bureau Director General Song Dexing said that the MOT is aggressively working to clarify the VAT. According to the Consulate, SSE believes that a new circular regarding the VAT is forthcoming.

Last night we heard from the representative of the U.S. Consulate, Shanghai who conveyed that he had met with the American Chamber of Commerce in the People’s Republic of China (AmCham China). Together, they are gathering information related to the VAT to provide to the Shanghai Tax Bureau.

This week the State Department contacted my office and further confirmed that shipping industry contacts reported to them that China is indeed preparing a new circular. According to the report, the Ministry of Finance (MOF) and State Administration of Taxation would jointly issue a circular to address the issues in the transportation and logistics sector. It is anticipated that the circular would be released very shortly.

According to the State Department, any guidance and clarification provided with respect to the VAT circular would have a retroactive application to August 1, 2013. A public announcement by Chinese authorities has not been made as of yet. That said, I am encouraged that the concerns raised by the Federal Maritime Commission on behalf of the maritime industry and stakeholders appear to be receiving due consideration by the People’s Republic of China.

Next, we discussed China’s idea of Establishing Mutual NVOCC Legal Assistance and a Mutual Bond Rider Recognition Mechanism

China’s position is that there is a U.S. preference of treatment regarding NVOCC bonding. The Chinese would “reciprocity” with U.S. NVOCCs by having the U.S. recognize the financial responsibility evidenced by Chinese NVOCCs posted in China. The Chinese expressed concern that Chinese shippers have no effective channel for claims against U.S. NVOCCs in China, without any financial guarantee posted in their country.