Documenting Direct Economic Benefit and Cost Allocation Methods under Bulletin 6
Chinese subsidiaries deducting parent service fees require direct economic benefit logs, cost pool transparency, and arm-length allocation keys under Bulletin 6.
WFOE Tax Compliance
Meaning
Fulfillment of all statutory tax obligations by a company entirely owned by foreign investors involves complex reporting and payment cycles. Maintaining wfoe tax compliance requires regular filings for value added tax and corporate income tax at both the local and national levels. The process also includes the management of monthly payroll taxes and the annual final settlement.
Reporting Cycle
Deadlines for these submissions follow a strict monthly and quarterly schedule that leaves little room for delay. For a firm focusing on wfoe tax compliance, the most intensive period occurs during the annual audit when the financial statements are reconciled with tax records. Failure to meet a single deadline can trigger an automatic system flag and a visit from the tax officer.
Audit Risk
Transparency in financial reporting reduces the likelihood of being selected for a random inspection. While wfoe tax compliance is the goal, the bureau uses big data tools to compare the reported margins of the entity against those of its competitors. This scrutiny increases for persistent loss makers.
Statutory Liability
Legal representatives of the company carry personal responsibility for the accuracy of the tax filings. Continuous wfoe tax compliance is necessary to maintain the credit rating needed for customs clearance. A clean record facilitates smooth operation.