On 29 June 2016, the State Administration of Taxation (“SAT”) announced updates to requirements for the reporting of related party transactions and administration of contemporaneous documentation (SAT Announcement [2016] No. 42, or “Announcement 42”). Announcement 42 refines the existing transfer pricing compliance requirements in China, including those relating to annual reporting forms for related party transactions (“RPT Forms”), country-by-country reporting, and transfer pricing documentation.
Announcement 42 replaces some provisions of the SAT Circular on Implementation Measures for Special Tax Adjustments (Guoshuifa [2009] No. 2) and applies to fiscal years beginning from 1 January 2016 onwards. The salient points of Announcement 42 are as follows:
Sets out the requirements for preparation of the Master File, Local File and country-by-country reporting
Requires preparation of additional documentation for cost sharing arrangements and thinly capitalised companies
Expands the related party transaction category to include transfers of financial assets
Extends the deadline for the preparation of required documentation
Increases the number of RPT Forms from 9 to 22
A Master File is required when:
The annual related party transactions exceed RMB1 billion, or
There are cross-border related party transactions and the company’s ultimate parent company has already prepared a Master File.
The master file must be prepared within 12 months after the close of the ultimate parent company’s financial year.
A Local File is required when:
Annual related party transactions of physical goods exceed RMB200 million (for toll manufacturing, the value is based on the import and export customs declared value),
Annual related party transactions for transfers of financial assets exceed RMB100 million,
Annual related party transactions for transfers of intangible assets exceed RMB100 million, or
All other related party transactions exceed RMB40 million in total annually.
The local file must be ready by June 30 of each year following the close of the company’s financial year.
Country-by-country reporting is required when:
The Chinese company is the ultimate holding company of the group whose consolidated revenue exceeds RMB5.5 billion, or
The Chinese company has been nominated as the country-by-country reporting entity.
Separately, taxpayers will be required to provide more information on their transfer pricing documentation such as value chain analysis, location-specific advantages and disclosure of outbound investments and related party equity transfers.
Companies that do not transact with overseas related parties are exempt from preparing contemporaneous documentation.
CONTACT US
Website: www.SBASF.com
Email: Info@SBASF.com
Tan Lee Lee (Ms), Director
T +86 21 6186 7602
tanleelee@SBASF.com
Yeo Lee Soon, Director
T +86 10 8591 1900
yeoleesoon@SBASF.com
Rita Boyle (Ms), Director
T +86 21 6186 7692
ritaboyle@SBASF.com
