Meaning
Formal communications from the tax bureau notify a taxpayer of specific increases to their tax liability following a transfer pricing audit or investigation. A tax adjustment notice contains the legal basis for the change, the revised calculation of taxable income and the amount of tax underpaid. It marks the conclusion of the investigative phase and the beginning of the collection phase.
Receipt of this document requires the taxpayer to either pay the balance or initiate a formal appeal.
Official Determination
The document details the specific transactions that the tax office found to be non-compliant with the arm’s length principle. It explains the method used by the authorities to recalculate the profits, such as the comparable uncontrolled price method or the transactional net margin method. A tax adjustment notice is issued only after the provincial or national authorities have reviewed and approved the local bureau’s findings.
This internal check prevents arbitrary adjustments by local officers.
Payment Obligation
Taxpayers have a limited window, usually fifteen days, to pay the additional tax and any accrued interest. The interest is calculated at the benchmark rate plus a statutory penalty for the period the tax was underpaid. Even if the company intends to challenge the decision, it must typically settle the debt first.
Failure to pay on time results in daily late fees and may lead to the seizure of bank accounts.
Review Right
An administrative appeal must be filed with the tax bureau at the next higher level within sixty days. During this process, the taxpayer can present new evidence or argue that the tax adjustment notice misapplied the law. If the administrative review is unsuccessful, the company can bring the case to the people’s court.
Litigation is rare because the courts often defer to the technical expertise of the tax authorities in valuation matters.
