Navigating Chinese Transfer Pricing Recharacterizations and Secondary Adjustments
Chinese transfer pricing recharacterizations reclassify intercompany cash flows into non-deductible deemed dividends unless secondary adjustments return excess funds.
Special Tax Adjustment Form 6
Meaning
Reporting templates for the disclosure of related party transactions allow the tax authorities to monitor the transfer pricing practices of foreign invested firms. The specific document known as special tax adjustment form 6 is part of the annual tax return package. It captures the details of service fees, royalties and interest paid to affiliates.
Reporting Obligation
Companies must submit this data if they meet the thresholds for related party transactions during the fiscal year. Filing the special tax adjustment form 6 is a mandatory requirement for large entities. This data allows for automated risk assessments.
Disclosure Detail
Information provided in the filing includes the name of the related party and the specific pricing method used for each transaction. On the special tax adjustment form 6, the taxpayer must also indicate if they have prepared a contemporaneous documentation file. This disclosure alerts the authorities to the level of compliance within the group and identifies potential targets for further investigation.
Penalty Risk
Inaccurate or incomplete entries lead to fines and a higher risk of a full scale transfer pricing investigation. Once a company submits special tax adjustment form 6, the information is locked into the national tax database. The bureau uses these figures to identify entities that deviate from the average profitability of their industry.