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China China Taxes Corporate Taxes How to Secure Tax Certainty through Advance Pricing Arrangements in China (Part Two)
KNOWLEDGE|
(1) |
Applicable period: tax years to be covered by the APA; |
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(2) |
Transaction Scope and Subjects: related parties and related party transactions to be covered by the APA; |
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(3) |
Enterprise and Group Structure: organizational and management structure of the enterprise and the group it belongs to; |
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(4) |
Historical Operation and Data: business operations, financial and accounting reports, audit reports, and contemporaneous transfer pricing documentation of the enterprise for the most recent 3 to 5 years, etc.; |
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(5) |
Explanation of the functions and risks of each related party involved in the reservation pricing arrangement: including the allocation keys used to allocate the functions, risks, such as facilities, personnel, expenses, assets involved, etc.; |
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(6) |
Market Conditions and Analysis: including industry developments and trends, and competitive environment, etc.; |
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(7) |
Other special factors: whether there are regional special advantages such as cost savings and market premiums; |
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(8) |
Retroactive application: whether the reservation pricing arrangement is retroactive to the years prior to the trial. |
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(9) |
Status of APA Request to Treaty Partner(s) :status of APA request to the competent tax authority(ies) of the other Contracting State(s) of the tax treaty(ies); |
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(10) |
Recent operations of involved related parties: business operations of the related parties covered by the APA and their related party transactions for the most recent 3 to 5 years; |
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(11) |
Potential for Double Taxation: during the pre-filing meeting stage, the enterprise shall submit additional information as requested by the tax administration(s) |
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(1) |
The enterprise is under open special tax adjustment investigation or other tax investigations; |
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(2) |
The enterprise fails to file the annual reporting forms for its related party dealings pursuant to the relevant regulations and requirements; |
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(3) |
The enterprise fails to prepare, keep and provide the contemporaneous transfer pricing documentation pursuant to the relevant regulations and requirements; |
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(4) |
No agreement is reached between the tax administration(s) and the enterprise during the pre-filing meeting stage |
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(1) |
Function and risk profile
Tax administrations(s) will analyze and evaluate functions performed and contribution made with respect to supply, production, logistics, sales, and research and development of intangibles, etc., as well as risks such as inventory risk, credit risk, foreign exchange risk and market risk assumed by the enterprise and its related parties respectively.
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(2) |
Comparability analysis.
Tax administration(s) will analyze and evaluate comparable information provided by the enterprise and make adjustment for substantial comparability differences.
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(3) |
Related party transaction.
Tax administration(s) will analyze and evaluate whether the revenue, cost, expenses and profits associated with the related party transactions cover by the APA are separately accounted for or determined based on reasonable allocation keys.
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(4) |
Pricing methodologies and calculation process.
Tax administration(s) will analyze and evaluate the proposed pricing methodologies and calculation process in the APA. Additional statement and explanation should be provided if an APA rollback is proposed.
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(5) |
Value chain analysis and contribution analysis.
Tax administration(s) will analyze and evaluate whether the value chain analysis or contribution analysis is complete and clear and whether due consideration is given to location specific advantages such as cost savings and market premium as well as to the contributions to the value creation made by the local enterprise.
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(6) |
Transaction price or profit level.
Tax administration(s) will determine the arm's length price or profit level based on the findings from the analysis and evaluation on the aforementioned aspects.
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(7) |
Assumptions.
Tax administration(s) will analyze and evaluate the factors influencing the enterprise's profitability and business operation and the extent of the influence. Appropriate assumptions applied to the APA shall be established accordingly.
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Disclaimer All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage. |
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