Meaning
National tax notices outline the specific documentation and reporting requirements that multinational enterprises must meet to comply with domestic transfer pricing regulations. Under sta public notice 2016 no 64, corporate taxpayers must prepare and submit contemporaneous documentation, including master files, local files, and special issue files, based on their annual transaction thresholds. This regulatory instrument establishes the standard of transparency required for cross-border transactions between related parties.
Reporting Standard
Taxpayers must evaluate their annual related-party transaction volumes to determine which files they are legally obligated to prepare. The local file must be completed by June 30 of the year following the transaction year.
Transfer Pricing
Tax authorities use the submitted documentation to assess the transfer pricing risk of the enterprise and select candidates for audit. The local file requires a detailed functional and risk analysis of the Chinese entity, a description of the transfer pricing method used, and a benchmarking study of comparable companies. This disclosure forces companies to justify their profit allocations with economic analyses.
Failure to submit the required documentation on time exposes the enterprise to transfer pricing adjustments and interest penalties.
Audit Compliance
Multinational firms must coordinate with their global and local tax advisors to ensure that their Chinese documentation aligns with the global master file. Consistent reporting across jurisdictions reduces the risk of triggering comprehensive tax audits or double taxation disputes.
