Recently, cross-border e-commerce sellers in Guangzhou, Zhongshan, Dongguan and other places in Guangdong Province have received notifications from the local tax bureaus via SMS or phone calls, and have been asked to explain whether they are using the "Safeway mode" of operation and to fill in the relevant business information. This trend has triggered widespread concern in the industry, and the regulators have quietly begun to map out the common operational structure of cross-border e-commerce.

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Feedback from sellers suggests that the coverage of this notice centers on thePearl River Deltaand other areas where cross-border e-commerce is active. The content of the text messages usually reads: "If it belongs to the Safeway model, please contact us to explain the situation". Up to now, the tax authorities have not yet characterized the "Safeway model" or clarified the follow-up treatment, but only indicated that it is currently in the "Safeway model".thorough search and enumeration" phase, which aims to understand the scale of application of the model, with specific policies still under study.

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What does it mean to receive a text message?

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This action shows that the tax department has an in-depth grasp of cross-border e-commerce, especially the mode of multi-store and multi-company cooperative operation. Industry experts pointed out that although no specific regulatory conclusions have yet been formed, the "Safeway model" has officially entered the regulatory field of view, and the common tax and structural arrangements of cross-border sellers are being scrutinized in greater detail.

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What can I prepare in advance after I receive the notice?

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According to the notices already received by sellers, if they are included in the statistics, companies need to prepare the following types of information:

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• Basic descriptive categories: Includes a description of the situation and self-examination and rectification;
• Customs Brokerage and Revenue Matching Class: Export declarations, which need to correspond to the platform's sales revenue and explain the matching relationship;
• Logistics voucher category: Contracts with freight forwarders, expense bills, payment vouchers and invoices;
• Procurement and financial flows category: Purchase contracts, invoices, payment records; platform statements, details of deductions such as commissions and advertising fees;
• special case: Not using 9610 for customs clearance, need to supplement purchase vouchers, cooperation agreements and payment flows.

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What is the Safeway model?

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The "Safeway Model" is a kind of operation structure that has been gradually formed in the cross-border e-commerce industry in recent years. The core of the model is to collaborate with a Hong Kong company through a number of companies in China (such as store companies, operation companies and export companies) to transform the B2C retail business for overseas consumers into a B2B wholesale business between the China company and the Hong Kong company in the export process. B2B wholesale business, so as to centralize customs clearance in 0110 general trade mode, to achieve tax optimization, diversification of platform risks and other purposes.

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What are the benefits of the Safeway model?

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The model is popular in the industry mainly because it systematically responds to several key demands of early and mid-career cross-border e-commerce sellers:

• Achieve customs and tax compliance: Solve the difficulties of many small stores that cannot obtain the compliant purchase invoice alone and have difficulties in completing the formal export customs declaration. Through the centralized operation of the main company, we can enjoy the national export VAT "exemption and refund" policy;
• Effective diversification of platform risks: In compliance with the rule of "one legal person, one store" on Amazon and other platforms, the stores are decentralized under different legal entities to form "store groups", which avoids the risk of a single store being blocked, leading to a total business stagnation;
• Enhance capital and operational management efficiency: The sales returns of all stores can be pooled to the Hong Kong company, which will then unify the fund dispatch to pay for the domestic operation service fee and purchase of goods, etc., thus facilitating the group's financial management and cost control.

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Can the Safeway model continue to be used?

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Although the model is widely used in the industry, its compliance boundaries have been blurred. From the perspective of tax regulatory trends and changes in international tax rules, the "Safeway model" faces the following risks:

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• Connected transactions and transfer pricing risk: Transactions between a domestic company and a Hong Kong company that do not comply with the separate transaction principle may face re-adjustment by the tax authorities;
• Permanent Establishment and Tax Resident Determination Risks: A Hong Kong company may be considered a PRC tax resident enterprise if it is found to have its effective management organization in the territory; at the same time, it may also constitute a taxable entity in a market country such as the United States;
• Impact of international tax reformAs the OECD's "two-pillar" program advances, the global minimum tax, taxable rules (STTR), etc., may increase the tax burden and compliance costs of such structures.

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From a comprehensive perspective, the "Safeway model" is under pressure to transform and upgrade in the face of intensified regulation and the evolution of international tax rules. The sustainability of relying solely on structural nesting and functional segmentation is questionable, and companies need to focus on matching substantive operations with compliance.

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The "Safeway model" is a product of a particular stage of development and has helped many sellers grow. However, profound changes in the current regulatory and international environment indicate that the era of "skillful" planning, which relies on information asymmetry and nested structures, is coming to an end. The future belongs to those enterprises with transparent operations, standardized finances, and tax treatments that are highly compatible with business substance.

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Sellers are advised to take this opportunity to proactively conduct health checks and risk assessments of their own operating models. If you have any questions about the compliance of your own structure, or need to sort out the materials, assess the risks and plan for transformation, please feel free to contact us. Our team of cross-border tax experts can provide you with targeted one-stop solutions to help you move forward steadily.

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