Meaning
Administrative guidelines issued by the national tax authority clarify the procedures for special tax adjustments and the documentation requirements for related party transactions. STA public notice 2017 no 6 provides the detailed rules for the implementation of the Enterprise Income Tax Law, particularly regarding transfer pricing, thin capitalization and general anti avoidance. This notice replaced several older regulations and introduced a more sophisticated approach to tax compliance for multinational companies.
It defines the structure of the master file, the local file and the special factor file that companies must prepare to justify their intercompany pricing. The notice also outlines the procedures for self adjustment and the potential penalties for non compliance. It applies to all companies that exceed the threshold for related party transactions, which is typically two hundred million yuan for purchase and sales.
This regulation is a cornerstone of the country’s efforts to align its tax system with international standards.
Documentation Standard
Transparency and detail are the key requirements for the reports that companies must prepare every year. Under the rules of STA public notice 2017 no 6, the local file must contain a comprehensive description of the company’s business operations, its related party relationships and its transfer pricing methodology. This includes a detailed functional analysis and a benchmarking study that compares the company’s results with independent peers.
The master file provides a global overview of the multinational group’s business, including its intellectual property, financial activities and supply chain. Companies with complex transactions or high levels of debt must also prepare a special factor file. These documents must be ready by the end of June each year and must be provided to the tax bureau within ten days of a request.
The high standard of documentation required by this notice makes it much easier for the authorities to identify potential tax risks.
Reporting Timeline
Strict deadlines for the submission of tax information are intended to ensure that the authorities have the most up to date data. STA public notice 2017 no 6 specifies that companies must disclose their related party transactions in an annual reporting form that is filed with their tax return. If a company fails to file this form or provides inaccurate information, it may be subject to a special tax investigation.
The notice also provides a timeline for the tax bureau to conduct its review and issue a notice of adjustment. Companies have the right to provide additional evidence and participate in negotiation meetings during this process. If an adjustment is made, the company must pay the additional tax and interest within a specified period.
The use of clear timelines helps to provide certainty for both the taxpayer and the government. It also encourages companies to maintain their records in a timely manner.
Compliance Threshold
Specific limits on the volume of transactions determine which companies are required to prepare the full set of transfer pricing documents. The application of STA public notice 2017 no 6 is triggered when a company’s related party transactions exceed certain financial amounts. For many small and medium enterprises, this means they only need to file the annual reporting forms and do not need to prepare a local file.
However, the tax bureau still has the power to request a functional analysis from any company if they suspect a tax risk. This risk based approach allows the authorities to focus their resources on the largest and most complex cases. Companies that fall just below the threshold should still maintain a basic level of documentation to defend their pricing in case of a routine inspection.
The notice provides a clear framework that helps companies to understand their obligations and manage their tax risks. Proper compliance with these rules is essential for any foreign company operating in the country.
