Attributing Profit and Calculating Credits under Expanded Source Rules
China expanded source rules trigger profit attribution through deemed profit margins and strict documentation tests for foreign tax credit offsets.
Bulletin 2010 Number 19
Meaning
Administrative reporting of intra group expenses involves a rigorous verification of the economic substance behind each transaction. The regulatory framework in bulletin 2010 number 19 governs the deductibility of these fees for corporate income tax purposes. Entities must demonstrate that services were actually rendered and provided a clear economic benefit to the recipient.
This document limits the ability of multinational firms to shift profits through unsubstantiated management fees.
Documentation Standard
Tax authorities evaluate the necessity and authenticity of services through a review of supporting contracts and internal records. Compliance with bulletin 2010 number 19 involves maintaining evidence that the fee charged matches what an independent party would pay under similar conditions. Detailed descriptions of the service nature and the specific cost allocation method used must be available upon request.
Administrative Authority
Local tax bureaus execute the verification of these filings during routine audits or special transfer pricing investigations. While bulletin 2010 number 19 provides the legal basis for adjustments, the actual enforcement depends on the rigor of the local office. A failure to meet the evidentiary burden leads to the disallowance of the tax deduction.
Transaction Threshold
Revenue deviations suggest a lack of market conformity and trigger deeper inspections of the taxpayer. Although bulletin 2010 number 19 applies to all taxpayers, its primary targets are large domestic and foreign invested enterprises. Documentation must be prepared in Chinese and kept for ten years.