SAT Strengthens Administration of Transfer Pricing in Outbound Payments (March 2015)

source：　 date：2015-04-01　 author：

The State Administration of Taxation ("SAT") has recently issued the Announcement on Issues concerning the Enterprise Income Tax on Payments of Fees Made by Enterprises to Related Parties Overseas (the "Announcement") which further specifies the basic principles, administrative requirements and the time limit for making retrospective adjustments with respect to the payments of fees made by enterprises to related parties overseas.

 

The Announcement specifies that an enterprise, when making payments of fees to a related party overseas, shall abide by the arm's length principle and provide, as required by the tax authority, the contract that it has signed with such related party, as well as the materials which can prove that the relevant transaction is real and in compliance with the arm's length principle. The Announcement lists four payment scenarios which are in contravention of the arm's length principle: 1. payments made to a related party which hasn't performed its functions, assumed any risks or engaged in any substantial business activities; 2. payments of service fees made to a related party for its provision of services that cannot bring direct or indirect economic benefits to the payer; 3. payments of r oyalties made to a related party which merely owns the legal title to the relevant intangible assets that haven't contributed to the payer's creation of values; and 4. payments of royalties made to a related party for any carried interest arising out of the listing-related financing activities of the payer.