Meaning
Comprehensive administrative regulation issued by the State Taxation Administration that governs the investigation, adjustment, and mutual agreement procedures for special tax adjustments. This document provides the detailed procedural manual for how tax authorities in China conduct transfer pricing audits and handle international tax disputes. The sta bulletin 2017 no 6 consolidated several previous rules into a single, clearer framework that aligns more closely with global standards like the base erosion and profit shifting project.
It covers a wide range of topics including the selection of audit targets, the methods for calculating adjustments, and the steps for seeking relief through treaties. This bulletin is the primary reference for both tax officials and taxpayers during any formal tax investigation. It emphasizes the importance of transparency and the use of the arm length principle in all related party dealings.
Regulatory Scope
Coverage of the bulletin extends to all forms of special tax adjustments including transfer pricing, thin capitalization, and controlled foreign corporations. The sta bulletin 2017 no 6 outlines the criteria the tax bureau uses to identify high risk taxpayers for audit. These include companies with large transactions with affiliates in low tax jurisdictions or those that report continuous losses while expanding operations.
The regulation also clarifies the rules for self adjustment, where a company can voluntarily correct its tax position before an audit begins. This proactive approach can lead to lower interest rates and a reduced risk of penalties. The bulletin provides a clear map of the taxpayer’s rights and obligations throughout the entire process, from the first notice of inquiry to the final assessment.
Investigation Path
Steps for conducting an audit are strictly defined to ensure consistency across different regional tax bureaus. The sta bulletin 2017 no 6 describes the phase of data collection, the functional analysis, and the benchmarking process that tax inspectors must follow. It mandates that officials must consider the specific economic circumstances of the taxpayer and the industry in which they operate.
The regulation also introduces the concept of a multi-level review within the tax administration to ensure that large adjustments are technically sound. Taxpayers are given specific timelines to provide information and to respond to the preliminary findings of the audit. This structured approach is intended to make the audit process more professional and less arbitrary.
It also allows for a more efficient resolution of cases through a formal settlement process.
Compliance Standard
Expectation for high quality documentation is a core theme of the entire regulatory framework. The sta bulletin 2017 no 6 reinforces the requirement for companies to maintain contemporaneous transfer pricing files that justify their intercompany pricing. These files must include a local file, a master file, and in some cases, a country by country report.
The bulletin specifies the content and the format for these reports, ensuring that they provide a complete picture of the company’s global and local operations. Failure to meet these standards can lead to a rejection of the company’s pricing and an automatic adjustment by the tax bureau. This focus on documentation reflects the shift toward a more evidence based tax system in China.
Compliance with these rules is the only way for a multinational enterprise to protect itself from significant tax risks and to ensure a stable operating environment in the country.
