Meaning
Financial surcharges apply when a non-resident enterprise fails to pay the corporate income tax arising from an indirect transfer of Chinese taxable assets by the statutory due date. Article 13 penalty interest is calculated based on the daily outstanding tax balance. The charge stops accruing only when the full tax amount is remitted to the relevant tax bureau.
Surcharge Calculation
The interest rate is tied to the benchmark lending rate published by the People’s Republic of China. For the purposes of article 13 penalty interest, the rate used is the People’s Bank of China benchmark loan rate for the period in which the tax was overdue, plus an additional five percentage points. This total rate is applied to the unpaid tax on a pro-rata basis for every day the payment remains outstanding.
Arrears Collection
Reporting the transaction within the specified thirty day window allows for a lower interest charge. When a party makes a timely disclosure, the five percent surcharge is waived and only the base benchmark rate applies to the article 13 penalty interest calculation.
Rate Application
Tax authorities demand payment of the interest alongside the principal tax amount. Because article 13 penalty interest is a statutory requirement, local offices lack the discretion to waive the base portion of the interest even if the delay was unintentional. Collection occurs during the settlement of the tax clearance certificate.
