On 17 September, 2015, China State Administration of Taxation
("SAT") released the Discussion Draft for the
Implementation Measures for Special Tax Adjustments
("Discussion Draft") to overhaul the existing trial
version of the Implementation Measures, i.e., Circular 2. In the
chapter of "Contemporaneous Documentation" of Discussion
Draft, SAT introduces an entirely new three-tiered transfer pricing
("TP") documentation mechanism, which strengthens and
clarifies the disclosure requirement on more detailed and
comprehensive information about intercompany transactions and
global activities of MNCs.
This significant change, incorporating Action 13 of Base Erosion
and Profit Shift ("BEPS") Project launched by
Organization for Economic Cooperation and Development
("OECD"), reflects SAT's requirements on the
transparency of global activities of MNCs as well as her assertion
of the application of contribution-remuneration matching principle
on domestic entities.
Discussion Draft marks a new stage for the administration on TP
contemporaneous documentation in China, and will further facilitate
tax authorities to conduct comprehensive, in-depth and efficacious
evaluation on TP arrangements of the enterprises. For taxpayers, it
will bring higher compliance costs in preparing the documents and
more exposures of being TP inquired and investigated.
In this Alert, we will introduce and analyze the new TP
contemporaneous documentation mechanism. For the overall
introduction of Discussion Draft, please refer to our last issue of
TP alert, "Discussion Draft for the Implementation Measures
for Special Tax Adjustments -- A Brand-new Epoch for Transfer
Pricing Administration in China". Meanwhile, we will release
more issues to discuss other key contents of Discussion Draft topic
by topic. Please expect our upcoming TP alerts.
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