Meaning
Mandatory reports compiled at the time of a transaction verify that cross-border dealings between related parties satisfy the arm’s length principle. Keeping contemporaneous tax documentation allows a business to defend its transfer pricing positions during an audit by the local bureau. This file must be ready for submission within twenty days of a formal request by the authorities.
Structural Content
The file typically consists of three layers including a master file, a local file and a special file for specific asset transfers. Preparing contemporaneous tax documentation involves detailed functional profiles of all involved entities and a thorough analysis of the selection of comparable transactions in the open market. Each layer serves to illustrate the distribution of risks and functions across the regional network.
Mandatory Threshold
Regulations apply when the annual total of tangible assets exceeds two hundred million yuan or intangible asset transactions surpass one hundred million yuan. If the scale stays below these limits, a simplified reporting path exists, but contemporaneous tax documentation remains advisable to avoid penalties during subsequent reviews. The absence of this file creates a legal presumption that the company intentionally reduced its taxable income.
Filing Integrity
Accuracy in the record ensures that potential adjustments do not trigger heavy interest charges.
