Friday, 27 March 2015

China tax authorities will review all outbound payments to overseas related parties

On March 18, 2015, the State Administration of Taxation (SAT) released the Public Notice Regarding Certain Corporate Income Tax Matters on Outbound Payments to Overseas Related Parties ( SAT Public Notice [2015] No.16, hereinafter referred to as the “Public Notice 16”). The SAT office released its Interpretation to the Public Notice 16 (hereinafter referred to as the “SAT’s Interpretation”) the next day, through its official website.

Public Notice 16 states that outbound payments to overseas related parties should follow the arm's length principle, and also specifies various circumstances where payments, service fees or royalties paid to overseas related parties would not be deductible for corporate income tax (CIT) purposes. Substance and documentation are also specifically addressed.

We believe that Public Notice 16 reflects SAT’s efforts to protect its tax base and demonstrates China’s support to the overall base erosion and profit shifting (BEPS) initiatives with local implementation of measures imposed on Chinese enterprises. Substance and documentary evidence are likely to be key issues in which there will be vigorous debates on interpretation by taxpayers and tax administrations.

Source & more info: PwC