China: Guidance integrating BEPS, transfer pricing | KPMG | US

China: Guidance integrating BEPS, transfer pricing audit practices

China: Guidance integrating BEPS, transfer pricing

The State Administration of Taxation (SAT) on 28 March 2017 released guidance on special tax investigations, adjustments, and mutual agreement procedures (MAPs).

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The guidance—Announcement 6—integrates some of the OECD's base erosion and profit shifting (BEPS) initiatives, particularly in relation to intangibles, into China’s domestic regulations. It also consolidates previous regulations on self-adjustments and outbound payments, and addresses certain existing practices adopted for transfer pricing audits. 

Announcement 6 follows the release of China’s revised transfer pricing compliance regulations in June 2016, and is effective from 1 May 2017.

Overview

The announcement can be broadly divided into the following parts:

  • Special tax investigations
  • Comparability factors and transfer pricing methods
  • Specific provisions on intangible assets
  • Specific provision on services
  • Mutual agreement procedures

KPMG observation

With the release of Announcement 6, taxpayers may be able to better understand the focus points and the rationale of tax authorities when undertaking transfer pricing investigations. More standardized transfer pricing investigation practices may be expected in the future.

Furthermore, given that Announcement 6 regulates both outbound payments and inbound receipts of royalty and service fees—while prior Chinese transfer pricing regulations focused mainly on outbound payments—it appears that first steps are being taken to administer the transfer pricing of outbound-investing Chinese multinationals.

 

Read a March 2017 report [PDF 412 KB] prepared by the KPMG member firm in China 

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