Ugly Facts About China Transfer Pricing
Hat tip to Rich at All Roads for his post a few days ago on transfer pricing, which includes several useful links.
This quote in particular got my attention:
[T]he statute of limitation for transfer pricing audits is 10 years and the audit itself can last for 5 years. There are interest and potential interest penalties associated with transfer pricing adjustments and companies have a maximum of 30 days to submit the information required by the tax authorities.
Rich’s editorial comment was “ouch.” Succinct, yet quite sufficient. I concur.
I’m a corporate and IP lawyer, so transfer pricing is way out of bounds for my normal work. However, I did include a brief discussion of the subject in my FDI Law class lecture on tax issues for foreign investors.
Rich’s links would have made my lecture much better. As it is, I have the feeling my students are still basically fuzzy on the subject.
In all seriousness, this subject does come up very frequently with respect to foreign investment projects. I would say that about half of the commercial contracts I deal with and an even higher percentage of corporate setups involve transactions between a parent company and subsidiary, or between a sub and a related entity. And I do know that China has gotten much tougher on transfer pricing in the past few years.
Important subject, even if it is insanely technical and often annoying.
I will generally agree with any post that talks up the hardship of China tax practices as its good for my business. However, in this case it should be pointed out that this is not truly strict deadline (and it is 20 days not 30). Companies have until 31 May (31 December this year as it is atransitional year) every year to prepare their TP contemporaneous documentation. Then upon request by the authorities they have 20 days to submit such documentation. Given the law, such companies should have (theoretically) already prepared this documentation and 20 day deadline should be relatively simple to comply with. Certain enterprises (those that suffer losses and have limited risks and functions) are required, in accordance with Circular 363, to submit within 20 days of the deadline irrespective of a request by the authorities. The difficult issue is for these companies and it is important for companies to ascertain whether they fall within that category.
Thanks for the clarification. I stand by my earlier comments on how much I dislike tax law and try to avoid it . . .
No worries Stan. I will always defer to your wisdom on IP.
Good deal. IP law can be labyrinthine and weird as well, but it never approaches the sheer flat-out technical nature of tax. My brain is not physically equipped to remain in continuous “tax law mode” for longer than, say, seven or eight minutes. After that, fluids begin to leak out my ears, and then things get really ugly.