Meaning
Customs regulatory directives from the General Administration of Customs of China require importers to declare relationship status and royalty payments on their customs declaration forms. Under announcement 2019 number 18, businesses must confirm whether a special relationship exists with the foreign seller, whether that relationship affects the transaction price, and whether any royalty payments or assists are linked to the imported items. This system ensures that customs authorities can detect and evaluate transfer pricing and royalty dutiability at the point of entry.
The scope of this measure applies to all registered Chinese importers engaging in transactions with affiliated overseas parties.
Reporting Obligation
Filing obligations under this framework mandate that every declaration includes explicit confirmations regarding three tax elements. While traditional import filings often omitted secondary transaction costs, the rules of announcement 2019 number 18 force immediate disclosure of associated fees. Importers must check specific boxes on the electronic customs declaration platform to indicate whether a special relationship exists between the buyer and seller.
This self-assessment is binding and carries substantial legal penalties if subsequent audits reveal that the transaction price was artificially suppressed.
Procedural Execution
Verification procedures start when the digital declaration is submitted to the China Customs Advanced Clearance System. Customs offices analyse the declared relationship data and cross-reference the import values against historical databases of identical or similar commodities from independent suppliers. When announcement 2019 number 18 is invoked, the customs platform triggers automated risk profiles that may hold the shipment for manual valuation review.
Importers who fail to provide consistent declarations face delayed clearance or are forced to pay a security deposit to release their cargo while customs conducts a formal price investigation. If the investigation confirms that the special relationship influenced the price, customs will adjust the dutiable value upward and impose back taxes along with interest. This mechanism requires importers to maintain detailed transfer pricing documentation to justify their declared values during post-importation audits.
Regulatory Limitation
The operational boundary of this reporting system is restricted to transaction valuation rather than broader corporate income tax calculations. While the declaration satisfies the primary requirements of announcement 2019 number 18, it does not prevent the tax authorities from performing independent transfer pricing audits for corporate income tax purposes. The customs clearance and taxation systems run on separate legal platforms, meaning a clearance under this announcement does not guarantee tax alignment.
This jurisdictional separation represents a major compliance challenge for foreign-invested enterprises.
