Per a recent OECD website posting, on 10 July 2017 the OECD released the 2017 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (“OECD TP Guidelines 2017 edition”). This consolidates the TP changes resulting from the 2013-2015 OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, updating the 2010 edition for:
In addition, the OECD TP Guidelines 2017 edition adjusts the “Recommendation of the OECD Council on the Determination of Transfer Pricing between Associated Enterprises”. This is in order to invite non-OECD members to adhere to the Recommendation in light of the expansion in the relevance of the OECD TP work, beyond the OECD member states, through the establishment of the Inclusive Framework on BEPS. A measure is also taken to facilitate accelerated adoption of TP Guideline amendments in future. This is through delegation of approval authority for technical amendments by the OECD Council to the Committee on Fiscal Affairs (see KPMG International’s publication here for details).
The following may be observed on the OECD TP Guidelines 2017 edition:
China is not a member of the OECD, and so so it is not bound to follow the OECD TP guidelines. However, many aspects of the updated BEPS TP guidance have been integrated into the following China TP guidance, albeit with “localization” for relevance to China’s economic conditions:
Per a recent posting to the OECD website, the OECD Committee on Fiscal Affairs (CFA) on 11 July 2017 released the draft contents of the 2017 update (“draft 2017 update”) to the OECD Model Tax Convention (“MTC”) for public comments by 10 August 2017. The draft 2017 update will be submitted for approval of the CFA and of the OECD Council later in 2017.
Comments are requested for certain parts of the draft 2017 update:
Comments are not requested on OECD MTC changes approved as part of the BEPS Package or which were earlier publically consulted on, including:
As part of the 2017 update, a number of changes and additions will also be made to the observations, reservations and positions of OECD member countries and non-member economies. These are in the process of being formulated and will be included in the final version of the 2017 update.
As a non-OECD member China’s tax authorities are not bound to follow the OECD MTC Commentary guidance. The guidance can, however, be referred to in discussions between tax authorities and taxpayers as persuasive in practice. China has drawn heavily on OECD MTC Commentary content for its own treaty guidance, in particular in Guo Shui Fa  No. 75. The SAT is understood to be currently working on new treaty guidance to complement the changes China will be making to its treaties through the MLI, and this is keenly awaited. It remains to be seen to what degree the SAT will draw on the OECD MTC Commentary additions in relation to principle purposes test (PPT). The PPT is being adopted initially into 45 China DTAs through the MLI, and will be adopted into more DTAs in future as further China DTA partners adhere to the MLI. Of particular interest will be whether, and to what extent, the SAT envisage using the PPT for PE cases.
China signed the MLI on 7 June 2017, see the following KPMG Publications for more information about this:
* KPMG International has also reported this development, please access the following publication for details:
** The United Nations (UN) Committee also reached agreement on several items for a planned 2017 update to the UN Model Double Taxation Convention between developed and developing countries. Some items have been agreed during the April 3-6 2017 session in New York, see KPMG China Tax Weekly Update (Issue 15, April 2017) for more details.
On 11 July 2017, the Ministry of Finance (MOF) and SAT jointly issued Cai Shui  No. 58 (“Circular 58”). This sets out Value Added Tax (VAT) implementation rules for the sectors that transitioned from Business Tax (BT) to VAT in May 2016, including construction and financial services. Circular 58 takes effect from 1 July 2017 (rules for financial services will take effect from 1 January 2018), clarifying the following:
* You may access the following KPMG publications for VAT policies for construction and financial services issued after 1 May 2016 and their impacts:
On 28 April 2017, MOF and SAT jointly issued Cai Shui  No. 38 (“Circular 38”). This clarified that, effective from 1 January 2017, a new tax incentive is provided to venture capital (VC) enterprises investing in science and technology enterprises at seed capital or start-up stage. Under this incentive, 70% of the investment amount can be offset against the taxable income of the VC enterprise for Corporate Income Tax (CIT) purposes. Furthermore, from 1 July 2017 equivalent Individual Income Tax (IIT) treatment will be provided for individuals investing through VC partnerships, as well as in an individual capacity as ‘business angels’
Circular 38 also provided that, VC enterprises must register and operate in compliance with the regulations on venture investment stipulated in the Provisional Measures for Venture Capital Enterprises (10 Departments Order No. 39) or Provisional Measures on Supervision and Administration of Private Investment Funds (CSRC Order No. 105) (See KPMG China Tax Weekly Update (Issue 18, May 2017), (Issue 23, June 2017) for details).
In addition to this, on 7 July 2017, China Securities Regulatory Commission (CSRC) issued “Q&A on Criteria and Application Procedures for Venture Capital Funds to Enjoy Tax Incentives”, clarifying additional qualifying criterion:
Where a VC fund meets the relevant requirements, the fund manager must, on an annual basis (by end April), complete and submit the application form as well as other materials to the local CSRC office where the fund is registered. The local CSRC office, upon receipt of the materials, will issue a certificate to the qualified VC fund for accessing the incentive. * For detailed implications of this new tax incentives, please refer to the following KPMG publication: