Bulletin 42 Article 18

Reporting Threshold

Consolidated revenue totals determine the applicability of this regulation to a specific multinational group. When a group generates more than 5.5 billion yuan in total consolidated income during the previous fiscal year, the local resident enterprise must prepare the documentation. This financial boundary targets large scale organizations that possess the resources to manage complex reporting tasks.

Smaller entities are spared the administrative burden associated with the disclosure of global tax positions. The determination of revenue follows the accounting standards applied by the ultimate parent entity in its home jurisdiction. If the ultimate parent is a resident enterprise, it carries the primary responsibility for the filing.

If the parent is a non-resident, the local tax authority may still demand the report under specific risk conditions. Accuracy in calculating the consolidated revenue is necessary to avoid penalties for non-disclosure.

Procedural Mechanism

Documentation flows from the resident enterprise to the state taxation administration during the annual tax filing window. The process begins with the identification of the group structure and the verification of the ultimate parent entity. Once the threshold is met, the enterprise collects data from every jurisdiction where the group maintains a presence.

This data includes revenue from related and unrelated parties, profit or loss before tax, and income tax paid or accrued. It also lists the number of employees, stated capital, accumulated earnings and tangible assets for each tax jurisdiction. The report must be submitted electronically through the official tax bureau portal alongside the annual income tax return.

If a group designates a local entity as its substitute filing entity, that entity manages the submission on behalf of the entire group. Tax authorities review the submitted data to detect potential shifting of profits to low tax jurisdictions. They compare the economic substance of the activities in each region with the amount of tax paid there.

This analysis identifies outliers that might trigger a formal transfer pricing audit or an inquiry into specific intercompany transactions.

Information Scope

Regional tax inspectors use the country by country report to verify the consistency of the group’s global tax strategy with local operations. The report provides a broad view of the global value chain and the distribution of profits. It does not replace the master file or local file but acts as a high level summary for risk assessment purposes.

Information contained in the report is subject to international exchange protocols where tax treaties are in place. If the resident enterprise fails to submit the report or provides incomplete data, it faces administrative penalties and a higher likelihood of audit selection. The tax authority may also apply a penalty surcharge if the non-compliance leads to an underpayment of tax.

Protecting the confidentiality of this sensitive commercial data remains a statutory obligation for the tax administration. Enterprises often conduct internal reviews to ensure the data in the report matches the information provided in other parts of their tax documentation. Consistent reporting across all jurisdictions reduces the risk of double taxation and disputes with authorities.

The state taxation administration keeps this data for use in future audits.