China to Crack Down on Tax Avoidance by Foreign Firms, Xinhua Says -- Update

BEIJING--China's tax authorities said they would step up supervision of multinational companies as part of a crackdown on tax avoidance, the official Xinhua News Agency reported.

China will conduct a comprehensive audit of the profit levels of foreign companies to make sure that there is no "base erosion and profit shifting," said Zhang Zhiyong, a deputy director of the State Administration of Taxation, Xinhua said Monday.

Mr. Zhang also said China would coordinate with other countries in the campaign.

Xinhua reported last month that a U.S. multinational will pay the Chinese government $140 million in back taxes and interest after Chinese authorities found the firm had avoided taxes.

The U.S. firm, which it referred to only as "Company M," agreed to pay 840 million yuan ($135.5 million) in back taxes and interest, according to Xinhua. The firm also agreed to pay more than 100 million yuan in additional taxes every year, Xinhua reported.

Xinhua described the company as being globally well known and having long been among the world's top 500 companies. It said the U.S. firm set up a wholly foreign-owned enterprise in Beijing in 1995.

The description matches, at least in part, that of U.S. software giant Microsoft, a Fortune 500 company that set up its Chinese subsidiary Microsoft (China) Co. in Beijing in 1995.

Microsoft would neither confirm nor deny that it was the company referred to in the Xinhua report, but said on Tuesday: "Microsoft's profits are subject to the appropriate tax in China."

--Richard Silk contributed to this article.

Write to Grace Zhu at [e-mail]

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