Meaning
Regulatory framework that defines the multi-tiered requirements for transfer pricing documentation for enterprises engaging in significant related-party transactions. This public announcement 2016 no 42 harmonized regional reporting with global BEPS standards by introducing the master file, local file and special file requirements.
Master File
Information regarding the global business model and capital structure of the entire multinational group must be summarized for the local tax authorities. This public announcement 2016 no 42 demands detailed descriptions of intangible property and intercompany financial activities that span multiple jurisdictions. It ensures that the role of the local entity is clear in the context of the total global operations of the parent company.
Reporting Duty
Local files are mandatory for businesses where the total volume of goods transferred to related parties exceeds two hundred million RMB in a fiscal year. Every corporate taxpayer falling into these brackets must have their documentation ready by the end of June following the transaction year. This directive limits the ability of firms to adjust prices retroactively without substantial economic justification recorded in the files.
Disclosure Limitation
Transparency remains the main goal as officials use the country-by-country reports to identify high-risk cases for detailed inspection. Public announcement 2016 no 42 allows the government to demand additional data if the basic files show low profit levels compared to industry averages. The documentation burden stops being mandatory only for those entities with small transaction volumes who do not hit any of the designated materiality markers.
