Page 40 - Doing Business in China

TAXATION

In contrast to the old TP documentation requirements, the key changes are:

▪ The Annual Related Party Transactions Reporting Forms (the ‘New Forms’) is in addition to the previous nine
forms, increasing the total number of forms to 22� More detailed and transparent information disclosure is
required� The New Forms also include the Country-by-Country reporting form (‘CbC Form’)�

▪ Bulletin 42 introduces a three-layer documentation approach, including master, local, and special issue files,
as opposed to the old TP regime that did not involve the master and special issue files� In addition, the local file
must now include a value chain analysis as well as location-specific advantages (‘LSAs’)�

Conditions that require preparation of a master file
An enterprise is required to prepare a master file for a fiscal year in Chinese if it meets any of the following thresholds:
▪ When the enterprise has cross-border related party transactions and its group has prepared a master file; or
▪ Related party transactions totalling over RMB1 billion during the year�

Conditions that require preparation of a local file
An enterprise is required to prepare a local file for a fiscal year in Chinese if it meets any of the following thresholds:
▪ Transfer of over RMB200 million (for toll manufacturing, the amount in customs records for imports and exports
should be included) in tangible assets�
▪ Transfer of over RMB100 million in financial assets�

▪ Transfer of over RMB100 million in intangible assets�
▪ Other related party transactions totalling over RMB40 million�

An enterprise that engages in simple manufacturing activities, such as toll processing, contract manufacturing,
simple distribution or contract R&D, and incurs a loss, is required to prepare a local file regardless of whether it
reaches any of the thresholds listed above �
1

Conditions that require preparation of a special issue file
An enterprise is required to prepare a special issue file in Chinese if it meets any of the following thresholds:

▪ The related party’s debt-to-equity ratio exceeds 2:1 for non-financial enterprises or 5:1 for financial enterprises; or

▪ Enterprise is engaged in a cost-sharing agreement�

Other considerations for documentation
Exemption
Enterprises that have only conducted related party transactions with domestic related party companies, or
implemented an Advance Pricing Arrangement (APA), are exempt from preparing master, local and special issue files�

Deadline for preparation
The master file shall be prepared within 12 months after the date when the group’s ultimate holding company’s
fiscal year ends�

The local and special issue files shall be prepared before 30 June of the year following when the related party
transaction occurred�

1 The last threshold was not stated in Bulletin 42. Instead, it was specified in State Taxation Administration Bulletin on Promulgation of the
Administrative Regulation for Special Tax Audit Adjustment and Mutual Agreement Procedures (‘Bulletin 6’).

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