July 2016 - SAT issued new rules on reporting of related party transactions and contemporaneous documentation

On 29 June 2016, the State Administration of Taxation (SAT) issued the Public Notice Regarding Refining the Reportingof Related Party Transactions and Administration of Transfer Pricing Documentation (SAT Public Notice [2016] No. 42, hereinafter referred to as “Bulletin 42”). Bulletin 42 provides new transfer pricing compliance requirements in China, including Annual Reporting Forms for Related Party Transaction (“RPT Forms”), Country- by-Country Reporting (“CbCR”), and Transfer Pricing Documentation (“TPD”). These new reporting guidelines are substantial changes to the existing rules, replacing the applicable sections in the existing regulations ( i.e., Chapters 2 and 3, and Articles 74 and 89 of the existing transfer pricing documentation regulations in Circular Guoshuifa [2009] No.2 (“Circular 2”) and Circular Guoshuifa [2008] No. 114).

We recommend taxpayers should take actions as soon as possible to identify the gaps between the existing TPD and the new TPD requirements and start to prepare the additional documentation and disclosure to bridge the gaps, as Bulletin 42 will apply from 2016 and onwards. For Local Files, there is only one more month for preparation, as compared to Circular 2. For Local Files and the newly added Special Issue Files, the deadline for preparation is June 30 of the following year. The deadline for preparation for the 2016 year would be June 30, 2017.