China's August Value Added Tax reform, in short named Circular 37 had international shipping companies at a clear disadvantage with unequal tax treatment in regards to their Chinese counterparts. This is now being revised with a new VAT-tax reform called Circular 106 which will yet again level the playing field for international shipping companies operating in China.
The seas have been quite rough lately for International Shipping Companies operating in China. Luckily, some unfair VAT tax reform practices will be amended as of January 1, 2014.
The twists and turns are many regarding China's VAT-tax reform, implemented in January last year to shift certain types of services from the Business Tax system to the Value Added Tax system. While the Chinese government emphasized its benefits, stating that it saved some 40 billion RMB for over 1 million taxpayers as of February this year – the enthusiasm wasn't shared by international shipping companies after an amendment issued in August this year subjected them to a special 6% VAT rate as well as other surcharges – giving them a clear disadvantage against Chinese competitors. 
Chinese law requires foreign owned companies to use wholly- or fully owned subsidiaries as third party agents to collect ocean freight, while Chinese shipping companies can charge shippers directly without the use of a freight forwarder. Before the reforms, freight forwarders were allowed to deduct international freight from their taxable income – but this deduction was no longer permitted under the latest August 2013 reform, which currently requires international shipping companies to pay a 6% VAT-rate as well as local surcharges (including the urban maintenance and construction tax, education levy and local education levy) on gross proceeds collected by clients, which in effect means that foreign owned shipping companies ends up being more heavily taxed than Chinese shipping companies. This is hardly in line with the new government discourse, which aims to gradually give foreign owned businesses "national treatment", implemented in small-scale reform projects such as the Pilot Free Trade Zone. 
After much turmoil, China's ministry of finance issued a joint amendment together with the State Administration of Taxation called the Circular Caishui no. 106, or "Circular 106" earlier this month, which stated in appendix III that the deduction of international freight from the taxable income of freight forwarders will yet again be permitted – effectively drawing the cost of foreign shipping companies back to the same level as for domestic shipping companies. The rule will be retrospectively effective from August 1, 2013. Great news for foreign shipping companies, indeed.