Meaning
Administrative regulations issued by the State Taxation Administration established the foundational framework for transfer pricing reporting and investigations in the mainland. This document, known as sta circular 2009 no 2, formalized the requirements for contemporaneous documentation and self-reporting of related-party transactions. It mandated that enterprises with significant intercompany trade volumes prepare a detailed annual report on their pricing policies.
Taxpayers used these guidelines for nearly a decade to manage their compliance risks before newer bulletins updated the specific reporting thresholds.
Compliance Authority
The State Taxation Administration used this circular to empower local bureaus to conduct formal audits on cross-border transactions. While newer regulations have superseded much of the text, the core principles regarding the arm length principle remain central to Chinese tax law. These rules established the first clear definitions of related parties and the five primary methods for price adjustment.
Taxpayers were required to maintain their documentation for ten years.
Procedural Evolution
The introduction of bulletin 42 and bulletin 43 in 2016 moved the regulatory environment toward a more complex three tiered documentation structure. This shift replaced the single report format defined in sta circular 2009 no 2 with a master file, a local file, and a special file. Under the previous circular, the local file was the only requirement, whereas the current system demands more transparency regarding the global value chain.
Tax bureaus now have access to a country by country report for very large multinational groups. This evolution aligns Chinese tax practice with international standards.
Investigative Power
Auditors frequently refer to the historical data collected under the circular when conducting retrospective reviews of a company tax position. The document granted the authority to adjust taxable income up to ten years after the transaction occurred. Many pending cases still rely on the definitions provided in this original framework.
The circular also introduced the concept of a primary adjustment and a corresponding adjustment to manage the impact of changes on the corporate balance sheet.
