Enterprises Exceeding Transaction Threshold Must Prepare Transfer Pricing Documentation Ahead of Deadline
As part of China’s annual CIT reconciliation process, enterprises that exceed the relevant transaction threshold (except those covered by an advance pricing agreement or only transacting with domestic related parties) are required to prepare and maintain contemporaneous transfer pricing documentation before the stipulated deadlines.
Importance of Transfer Pricing Documentation
The transfer pricing documentation requirements aim to ensure compliance with China’s transfer pricing regulations and prevent tax avoidance. The documentation must be prepared in accordance with the Chinese Tax Authority’s (SAT) guidelines and include information on the enterprise’s business activities, transactions, and pricing practices.
Consequences of Non-Compliance
Failure to submit the required transfer pricing documentation can result in penalties ranging from RMB 10,000 to RMB 30,000. In addition, enterprises that fail to make corrections as required or engage in fraudulent activity may face license revocation.
Tips for Managing Annual Compliance Requirements
To avoid non-compliance and potential penalties, enterprises are advised to:
- Pay attention to procedural changes and corresponding requirements, as the SAT frequently updates its guidelines.
- Consider local variations, as different regions may have unique requirements.
- Utilize qualified third-party services, such as tax accountants or auditors, to manage the annual compliance process.
Expert Insights
“Preparing transfer pricing documentation can be a complex and time-consuming task, especially for enterprises with multiple subsidiaries or branch offices in China,” said [Name], a senior tax accountant at Dezan Shira & Associates. “By working with qualified third-party services, enterprises can ensure compliance with Chinese regulations and avoid potential penalties.”
About the Author
This article was adapted from our China Briefing Publication: A Quick Guide to Accounting and Audit in China 2024 (2nd Edition). Dezan Shira & Associates is a leading tax consulting firm that assists foreign investors into China and has done so since 1992. For more information, please email us at Tax@dezshira.com or visit our website at www.dezshira.com.
About Us
Dezan Shira & Associates is a professional services firm providing tax, accounting, and audit services to foreign companies in Asia. With offices in China, Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, we have the expertise to help your business succeed in Asia. Please contact us for assistance with transfer pricing documentation or any other tax-related matters at china@dezshira.com.