China tax authority: Outbound payments under the spotlight

The Chinese tax authorities have enhanced their efforts to monitor intra-group outbound service payments and royalty charges. In July 2014, the highest tax authority in China, the State Administration of Taxation (SAT), released the “Notice of Anti-Avoidance Examination on Significant Outbound Payments.” In this notice, the SAT instructs the local tax bureaus to launch comprehensive tax examinations on all significant outbound service fees and royalty fee payments of multinational companies (MNC), with an aim on intra-group charges and profit shifting avoidance.

The SAT Notice indicates that all significant outbound service and royalty charges deserve special attention in these tax examinations. The definition of “significant” outbound service and royalty charge values may vary by region or SAT bureau. It appears that these examinations will target enterprises paying service fees or royalties to overseas related parties during the period 2004 – 2013, especially on those payments made to tax havens, low tax rate countries/regions, etc.

MNC’s that currently have outbound intra-group service or royalty charges are encouraged to review their outbound intra-group charges to ensure they do not fall within the scope of the SAT examination. Please contact us for more information.

For further questions, please contact Michelle Wang at 312-602-3624.