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Tax Administration

Transfer Pricing & Tax Conventions

· INSIGHTS

Transfer Pricing

In relation to the final achievements of the Action Plan on Base Erosion and Profit Shifting (BEPS) issued by the Organization for Economic Co-operation and Development (OECD), the State Taxation Administration issued its own announcements and management measures. Based on the tax authorities’ Action Plan, taxation practices and technological conditions in the field of transfer pricing in recent years, the State Taxation Administration set down its three-document requirements for the transfer pricing concurrent data report (the document revealing the overall global business of the enterprise group to which the ultimate holding enterprise belongs, the document disclosing details of related party transactions, and the document regarding special matters that apply to certain types of transactions) as well as requirements for the Country-by-Country Reporting Form. When an enterprise meets the conditions for preparing the three above-mentioned documents (including the amount of related party transactions), it shall prepare the relevant documents and observe regulations on the object of exemption, the preparation deadline, and the submission deadline.

An eligible resident enterprise should submit an annual report on related business transactions (including the Country-by-Country Reporting Form) before the date of the final settlement of corporate income following the end of an accounting year. The reporting form adopts a form numbering system similar to that of the annual corporate income tax return, has 14 categories in total requiring enterprises to fill in the relevant information. Chinese tax authorities' special tax adjustment management is becoming more comprehensive, real time and dynamic. Proactive risk management will be ramped up, and a shift made from post-event investigation to pre-event analysis and active compliance, focusing on concurrent data, annual declaration of corporate income tax, risk analysis and assessment, and autonomous tax payment adjustments.

Tax Conventions

China is actively establishing an international tax governance system aligned with China's new opening-up landscape. Domestically, China upgrades its international tax system and tax collection system; internationally, China engages in in-depth global tax cooperation. As of the end of June 2020, China had signed tax conventions with 108 countries and regions; the Chinese Mainland had finalized tax arrangements with Hong Kong and Macao and had signed a tax convention with Taiwan. In addition, China has signed three multilateral tax conventions and 10 tax information exchange agreements. Bilateral tax conventions have played a positive role in the prevention of double taxation for cross-border taxpayers from both contracting parities, while enhancing tax certainty, strengthening economic cooperation, promoting bilateral capital, technology, and personnel exchanges, and ramping up tax cooperation.

On October 14, 2019, China released the Administrative Measures for Managing Treaty Benefits to Non-resident Taxpayers, which simplifies procedures required for non-resident taxpayers to enjoy treaty benefits. The measures instate a change from "submission at the time of declaration" to "retention for later inspection" ("self-assessment of eligibility, claiming treaty benefits, and retaining documents for inspection"). This modification can significantly ease the burden on non-resident taxpayers and withholding agents throughout the declaration process.

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