In accordance with the Enterprise Income Tax Law of the People’s Republic of China and the Regulation on the Implementation, enterprises can reach the cost contribution arrangements conforming to arm’s length principle for sharing the common cost with their affiliates. The cost contribution arrangements (CCA) is reached by enterprises in order to sharing the cost and risk from research and development, production or obtaining asset, labor service and rights, meantime, CCA determines the nature and scope of each side’s interests brought by research and development, production or obtaining asset, labor service and rights. The cost contributing shall conform to cost-expected income matching principle, as well as submit the relevant materials in accordance with the tax authority requirement in the prescribed time limit.
We can trace the costs, expenses, management and control of the business between affiliated enterprises, formulate the relevant internal policies based on reasonable commerce operation structure and assist signing cost contribution arrangements.

Contents of cost contribution arrangements

• The circumstance of participants;
• The contents and scope of intangible assets and labor service;
• The agreed period;
• The calculation method and assumption of expected income;
• The circumstance of initial and follow-up cost, and the explanation on conforming to arm’s length principle;
• The use and change of accounting methods;
• The treatment and procedure of joining or quit;
• The treatment and condition of compensatory payment;
• The treatment and condition of change or termination;
• The regulation of non-participants’ use of the cost contribution arrangements.

Tax administration of cost contribution

• Enterprises shall report to the State Administration of Taxation within 30 days after reaching the cost contribution arrangements; the tax authority shall report to the State Administration of Taxation that whether cost contribution arrangements conform to arm’s length principle.
• Member payment; exit compensation; adjustment of cost and interest contribution after changing; rational contribution of profits after termination; rights of the tax authority to adjust; added adjustments made by enterprises in accordance with the actual situation.
• The adjusted cost which is regulated to be paid before tax collection shall be added to taxable income in the same year. Contribution of agreed income caused by intangible assets CCA, Member payment, exit compensation or termination of agreement, shall be treated as asset purchase.

The corresponding time period materials about cost contribution agreement

• Transcript of cost contribution agreement;
•  Other relevant agreements about implementing cost contribution agreement;
• The circumstance, sum and form of non-participants’ use of cost contribution agreement;
• The circumstance of participants’ joining and quit this year;
• The circumstance of change and termination;
• The structure and sum of cost happens this year;
• The circumstance of each participant’s cost contribution this year;
• The comparison and adjustment of expected and actual income this year.

Tips:
Unqualified cost contribution agreement shall not be paid before tax collection. Unqualified cost contribution agreement specifically means the agreement has no reasonable commercial target or economic value, doesn’t conform to arm’s length principle or cost-income matching principle, doesn’t record, prepare, preserve or submit the corresponding time period materials in accordance with regulation. Meantime, the cost contribution agreement shall not be paid before tax collection when the operation period is less than 20 years.