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Tax alert: China issues compliance requirements on related-party transactions

March 10, 2017 Article 2 min read
Kellie Becker Joel Mitchell
New regulations from China’s State Administration of Taxation require substantial documentation for related-party transactions effective 2016.


On June 29, 2016 China’s State Administration of Taxation issued Public Notice [2016] 42 (“Notice 42”) which enforces additional compliance requirements for related-party transactions. The compliance requirements addressed in Notice 42 specifically include the following:

  • Transfer Pricing Documentation (TPD)
  • Country-by-Country (CbC) reporting
  • Annual reporting of related-party transactions documented on RPT forms


The TPD compliance requirement has three components including the master file, local file, and special issues file. The master file requirement generally applies to taxpayers that have related-party transactions within a Multinational Enterprise (MNE group) where the ultimate owner prepared a master file, or related-party transactions that annually exceed 1 billion RMB. The master file should be completed within 12 months of the fiscal year end of the ultimate holding company. The local file requirement is based on the presence of certain related-party transactions which are broken down by categories. The special issues file apply to certain taxpayers which participate in cost sharing agreements or are subject to the thin capitalization rules. The local file and special issues file should be completed by June 30 following the fiscal year in which the related-party transactions occurred. The RPT forms are composed of 22 forms which outline the related-party transactions of an entity.

The RPT forms generally cover the following related-party transactions: transfer of the right to use or ownership of tangible assets, transfer of financial assets, transfer of the right to use or ownership of intangibles, financing, and services. As part of the RPT forms, the CbC reporting package is also included and should be completed if applicable.

CbC reporting is generally required for a member of a MNE group for which the ultimate holding company has consolidated revenues exceeding 5.5 billion RMB or entities which are appointed for CbC Reporting. Applicability: Notice 42 applies to related-party relationships which are generally defined as direct or indirect 25 percent ownership among entities. However, there may be some exceptions such as management control in which cases a transaction may be treated as related even if the 25 percent threshold is not met.

Notice 2016 is effective starting 2016 and onward.

  • TPD is required to be submitted within 30 days upon the tax authorities’ request.
  • The RPT forms which also include the CbC reporting are to be submitted with the annual income tax filing which is due May 31.

We recommend that all transactions of Chinese taxpayers are evaluated as soon as possible to assure that related-party information necessary in order to properly complete the disclosure requirements is available.

The information provided in this alert is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC, is not rendering legal, tax, accounting, or other professional advice, position, or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.

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