Transaction-based Tax Evasion on Chinese E-commerce Platforms: Compliance Difficulties for Three Types of Taxes, VAT Reform, and New Winners

Abstract

Shopping on e-commerce platforms is no longer a new phenomenon. Buying and selling goods on this medium naturally gives rise to cross-border transactions that involve the internet. Due to the size of the population, Chinese e- commerce platforms such as Taobao and T-Mall of Alibaba, and JD.Com undoubtedly are market leaders.

The typical modes of goods transaction via e-Commerce platforms are consumer to consumer, business to consumer, business to business, and operator to consumer transactions. One heated debate now, especially in China, revolves around the challenges of taxing these transactions. The Business Tax to Value Added Tax (VAT) reform that was completed in 2015 presents new tax compliance challenges that resulted in a new group of winners, namely, suppliers of technological solutions.

The international tax compliance issues for traditional transactions are relevant to these new transaction types. The main feature cross-border goods transactions through E-Commerce Platforms that differ from traditional transactions is that the internet facilitates those transactions, thereby leaving a digital footprint at every stage of the transaction. These digital footprints could be captured by technology.

This paper identifies the particular tax types that are of concern. They are customs duties, VAT and income tax. The paper discusses types of transactions involving different parties, and analyses the possible tax liabilities and taxing points during the cross-border movements of the good, from the seller to the buyer, and the digital footprint they are leaving.