Meaning
Statutory instructions regarding the administration of special tax investigations and mutual agreement procedures outline the procedural rights of taxpayers. Introduced to modernize the tax system, public notice 6 of 2017 defines the methods used by authorities to audit transfer pricing and other cross border transactions. It consolidates previous rules into a single framework for transparency.
The document specifies how audits are initiated, conducted and concluded.
Audit Procedure
Selection of targets for investigation follows a risk based approach. The tax bureau looks for entities with persistent losses or fluctuating profit margins. Once an audit begins, the taxpayer must provide extensive data on its global operations.
This includes internal contracts and financial statements from related parties.
Dispute Resolution
Resolution of a tax disagreement often involves the mutual agreement procedure. This process allows the Chinese tax office to negotiate with the tax authority of another country. The goal is to eliminate double taxation resulting from a local adjustment.
It provides a formal channel for multinational firms to seek relief from conflicting tax claims. Negotiations between jurisdictions may take several years to reach a conclusion.
Compliance Standard
Strict adherence to these rules is required to avoid aggressive enforcement actions. The notice emphasizes the importance of self adjustment by the taxpayer before an audit is formally launched. By voluntarily correcting errors, a firm can reduce the total amount of penalties.
Regular internal reviews help maintain alignment with the expectations of the State Taxation Administration.
