Tuesday, 30 August 2016

China’s SAT issues new rules on reporting of related-party transactions and contemporaneous documentation

China’s State Administration of Taxation (SAT) on June 29 issued new regulations1 to improve the reporting of related-party transactions and contemporaneous documentation. SAT Bulletin [2016] No. 42, published on the SAT’s website on July 13, will replace the existing transfer pricing documentation regulations in Circular Guoshuifa [2009] No. 2, known as Circular 2.
Unlike Circular 2, which covered various aspects of special tax adjustments comprehensively, Bulletin 42 deals only with the reporting of related-party transactions and contemporaneous documentation. Our understanding is that additional regulations will be issued to complete the revision of Circular 2.2 Bulletin 42 will apply from 2016, and the applicable sections in the old regulations (Chapters 2 and 3, and Articles 74 and 89 of Circular 2; and Circular Guoshuifa [2008] No. 114) will be repealed.
Bulletin 42 introduces a three-tiered documentation framework, as set out in the ECD’s final report on BEPS Action 13, while requiring technical analysis and consideration of positions that are familiar to the China market – for example, the impact of location-specific advantages on pricing arrangements. Requirements that were included in the September 2015 discussion draft revision to Circular 2, including country-by-country reports, master file and local file, the special issue file, and value chain analysis are covered as well by Bulletin 42.
Bulletin 42 addresses issues that have been the focus of the Chinese tax authorities’ interest for years, deals with practical issues they have experienced, and provides a new landscape for transfer pricing practice and management in China. Additionally, the localization and implementation of BEPS Action 13 in China is a milestone in the internationalization of China’s transfer pricing practice.
Source & more info: Deloitte