Prior to May 1, 2016, the supply of loan intermediary services and many other services in China was subject to tax under a turnover tax regime known as the Business Tax. As a turnover tax, the system had a tax cascading effect, with suppliers unable to recognize input taxes incurred on acquisitions used to make their supplies. In 2016, China completed a reform process of shifting supplies taxed under the Business Tax to the VAT, becoming one of the only jurisdictions to apply a VAT generally to financial services. However, the Chinese VAT rules applicable to loan intermediary services are significantly different from the conventional VAT rules. A small number of bank-to-bank loans and loans from the central bank are treated as exempt supplies, free of tax but denying the lenders and borrowers input tax credits. Most other loans are fully taxed with gross interest payments used as the tax base, and neither the borrower nor lender are able to claim input tax credits in respect of the loan or related acquisitions. All these features replicate the cascading turnover tax outcome of the predecessor Business Tax.