Meaning
Regulatory announcement issued by the State Taxation Administration clarifies the procedures and documentation standards for special tax investigations and adjustments. Officially titled public notice 2017 number 6, it provides the roadmap for how tax officials conduct transfer pricing audits and reach settlements with taxpayers. It introduced more structured rules for self adjustment and emphasized the importance of the substance over form principle.
The notice is a companion to other regulations that together form the modern transfer pricing regime in China.
Procedural Change
Modernization of the audit process is a primary goal of the document. Under public notice 2017 number 6, tax authorities have a clearer mandate to use various methods for identifying non compliant companies, including big data analysis and industry wide screening. The notice also defines the steps for a formal investigation, from the initial notice to the final assessment and appeal options.
Documentation Requirement
Enterprises under review must provide a higher level of detail regarding their value chain and the economic benefits of their related party transactions. Public notice 2017 number 6 specifies that the burden of proving that a transaction creates real value rests with the company. If a service fee is paid to a foreign parent, the local entity must show that the service was actually received and was necessary for its business operations.
Audit Boundary
Limitation of the look back period and the definition of the interest charges on unpaid tax are clearly stated. Public notice 2017 number 6 sets the rules for how far into the past an investigator can go when searching for pricing discrepancies. This clarity helps businesses calculate their potential tax exposure and manage their compliance risks more effectively.
