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In accordance with Notice of the State Administration of Taxation on Issuing the Measures for the Implementation of Special Tax Adjustments (for Trial Implementation), qualified enterprises shall prepare the annual contemporaneous documentation before May 31st of the following year after related party transactions occurred. Meanwhile, No. 363 of the State Administration of Taxation has clear provision that if the enterprise which carries the limited functions and risks 安and have losses in the tax year, no matter whether it is up to the previously mentioned standard, the enterprise shall prepare the contemporaneous documentation and other relevant materials of the loss year, and submit those materials to tax authority before Jun. 20 in the following year.
With the administrative system of transfer pricing and relevant anti-tax evasion becoming more and more complex, enterprises shall give lots of attention on legal requirements of transfer pricing contract and manage the transfer pricing risks as soon as possible. Taxpayers shall make the rational tax and transfer pricing strategy to meet the requirements of tax laws, and prepare the contemporaneous documentation in accordance with tax provisions.
Preparing contemporaneous documentation is not only completing legal obligations, but also an effective tax desiring and risk administration tool. It is not only good for certificate that the related-party transaction suit the independent trade principle, and the business structure and arrangement are rational to prevent other relevant risks.
In accordance with present tax provisions, if the enterprise did not submit application form for related-party transaction, contemporaneous documentation or other relevant materials as what provisions ruled, the enterprise shall pay the fine of ￥2,000 to 10,000 and not more than ￥50,000; if the enterprise refused to offer contemporaneous documentation and trade materials with related-parties, or offer fake or uncompleted materials, fail to reflect the actual related-party trade business, the enterprise shall be ordered to make correction within a time limit and pay the fine not more than ￥50,000.
Though the amount of fine isn’t large, it will cause more serious trouble, for example, the tax authority has the right to check and ratify the enterprise income tax using rational methods. Meanwhile, the enterprise which shall pay the fine will become investigation object of anti-tax evasion.
During the transfer pricing adjustment, enterprises shall not only be order to pay the unpaid duties and further pay the interest for every day in arrears which can’t be deducted before computing the taxable incomes and face the double taxation brought by this adjustment, but also pay the fine at rate of 5% for every day in arrears which can’t be deducted before computing the taxable incomes. But if the enterprise prepared and offered the contemporaneous documentation about transfer pricing contracts, the fine at rate of 5% can be exempted.
Hwuason TP Services
The procedure of assisting the enterprise to prepare the contemporaneous documentation about transfer pricing:
We will obtain a deep understanding of the enterprise’s operating situation, operating functions, risks, assets and relevant distribution of cost, expense and profit, analyze systematically the situation of related-party transactions to point out the problems and risks in related-party transaction, complete the contemporaneous documentation and offer rational professional suggestions, in order to give the enterprises references for administration of transfer pricing.
In particular, HWUASON can assist the enterprise to complete compiling the contemporaneous documentation of transfer pricing within ordered time, including organization structure, operating and producing situation, related-party transaction situation, comparable analysis, choice and utilize of transfer pricing methods, as well as the filing Company Function and Risk Analysis Table and Company Annual Related Party Transaction Financial Status Analysis Table, choice of the comparable objects and data, final determination of transfer pricing strategy and so on.
To meet the requirements with domestic characteristics, HWUASON has three significant professional advantages in preparing contemporaneous documentation of transfer pricing:
■ in analysis of enterprise functions and risks, HWUASON has rich operating experience to assist enterprise to determine the risks of present transfer pricing policy and the assets of each related parties rationally. What’s more, we can use the most appropriate transfer pricing method and explain the reasons.
■ in comparable analysis, HWUASON has rich operating experience and professional ability to assist enterprise to analyze and choose the comparable elements, offer the actual comparable information and explain the reasons, analyze the comparable enterprise’s functions, risks and so on, explain the comparable business and adjust the comparable data.
■ in the choice and utility of transfer pricing methods, HWUASON has rich operating experience to assist enterprise to choose the best transfer pricing methods and explain the reasons, compile the logic relationship between comparable information and the methods mentioned before, make the relevant hypothesis and judgment clear, determine the incomparable related-party transaction price and profit suit the independent trade principle and collect other supportive materials.
With the excellent professional ability and practical operating experience, HWUASON can point out the transfer pricing risks, assist enterprise to define the scope of specific transfer pricing risks, seek the opportunity and space for planning and offer feasible basic suggestions to reduce the risks.