国税发[2004]143号

（Promulgated¹ by the State Administration of Taxation² on 22 October 2004 and effective as of date of promulgation³.）

颁布日期：20041022 　实施日期：20041022 　颁布单位：国家税务总局

　　PART ONE

　　GENERAL PROVISIONS

　　Article 1　These Rules are formulated⁴ in accordance with Article 13 of the PRC， Foreign Investment Enterprise and Foreign Enterprise Income Tax Law （the “Tax Law”）， Articles 52 to 58 of Part Four of the Implementing⁶ Rules for the Tax Law （the “Tax Law Implementing Rules”）， Article 36 of the PRC， Administration of the Levy⁷ and Collection of Taxes Law （the “Tax Levy and Collection Administration Law”）， Articles 51 to 56 of the Tax Administration Law Implementing Rules （the “ Tax Levy and Collection Administration Law Implementing Rules”）， the State Administration of Taxation， Administration of Tax on Business Transactions Between Affiliated⁹ Enterprises Implementing Procedures （Guo Shui Fa （1992） No. 237 （“the ”Implementing Procedures“）， the State Administration of Taxation， Several Specific Issues in the Implementation¹⁰ of the Circular （Guo Shui Fa　（1992） No. 242） and relevant provisions of the tax treaties （or arrangements） between the Chinese government and governments of relevant countries （special administrative¹¹ regions） （”tax treaties or arrangements“）， with reference to common international practice and in the light of the overall requirements for reform of China's system for the administration of tax collection and the actual practice in the taxation of transfer pricing， in order to enable the tax administration of business transactions between affiliated enterprises （the ”Tax Administration of Transfer Pricing“） to become standardized¹³ and subject to procedures， and to continuously improve work quality and efficiency.

　　Article 2　These Rules apply to the administration of tax on business transactions between affiliated enterprises. The phrase “administration of tax on business transactions between affiliated enterprises” means investigation¹⁴， auditing¹⁶ and tax adjustment according to law by dedicated¹⁷ organizations or dedicated personnel of the competent tax authorities at all levels in situations where the prices or fees for business transactions between affiliated enterprises， such as the sale， purchase and use of tangible¹⁸ property， the assignment and use of intangible property， the provision of services and financing， etc. are not received or paid as business transactions conducted at arm's length， thus reducing the amount of taxable revenue or income.

　　Article 3　For the purposes of these Rules， the phrase “competent tax authorities at all levels” means tax bureaux at or above municipalities and autonomous¹⁹ prefectures with districts. In order to standardize¹² and implement⁵ these Rules， taxation matters may be specific handled by institutions or other relevant tax administrative departments designated for the administration of international （external） tax， established within the tax bureaux at or above municipalities and autonomous prefectures with districts.

　　PART TWO　DETERMINATION OF THE AFFILIATION²⁰ BETWEEN AFFILIATED ENTERPRISES AND SUBMISSION²¹ OF RETURNS ON BUSINESS TRANSACTIONS

　　Article 4　The phrases “direct or indirect ownership or control in terms of capital， business operations， sales and purchases， etc.”， “direct or indirect ownership or control of both parties by a third party” and “other affiliate⁸ relationships arising from mutual²² interests” as referred to in Article 52 of the Tax Law Implementing Rules， and the phrases “direct or indirect ownership or control in terms of capital， business operations， sales and purchases， etc.”， “direct or indirect ownership or control of both parties by a third party” and “other relationships arising from mutual interests” as referred to in Article 51 of the Tax Levy and Collection Administration Law Implementing Rules mainly mean that an enterprise and another company， enterprise or other economic organization （“Another Enterprise”） are affiliated enterprises if：

　　1. one entity²³ directly or indirectly²⁴ holds a total of 25% or more of the shares of the other entity；

　　2. 25% or more of the shares of each entity is directly or indirectly owned or controlled by a third party；

　　3. loans between the enterprise and Another Enterprise account for 50% or more of the enterprise's self-owned funds， or 10% or more of the enterprise's total loans are guaranteed by Another Enterprise；

　　4. more than half of the senior management personnel such as the directors or managers or at least one managing director of the enterprise is appointed by Another Enterprise；

　　5. the production and business operations of the enterprise can be carried out in a normal manner only with licences （such as for industrial property rights， proprietary²⁵ technology， etc.） from Another Enterprise；

　　6. the raw materials， parts， components²⁶， etc. （including their prices， transaction conditions， etc.） purchased by the enterprise for production and operation purposes are supplied and controlled by Another Enterprise；

　　7. the sale of the products or merchandise produced by the enterprise （including their prices， transaction conditions， etc.） is controlled by Another Enterprise； or

　　8. other relations that involve actual control of the production， operation or transactions of the enterprise， or affiliations²⁷ in terms of interests， including relationships with family members or relatives.

　　Tax auditing personnel shall carry out audit¹⁵ and inspection²⁸ according to each of the above criteria²⁹ and enter the inspection result in a Form for Determination of the Affiliation Between Affiliated Enterprises. If an enterprise has two or more affiliated enterprises， the affiliations shall be inspected separately and separate forms shall be completed.

　　Article 5　Wherever an enterprise and Another Enterprise constitute affiliated enterprises， an Annual Return of the State Administration of Taxation of the People's Republic of China on Business Transactions Between a Foreign-Investment Enterprise or Foreign Enterprise and Its Affiliate （a “Return”） shall be submitted to the competent tax authority within four months from the end of the tax year.　If an enterprise has conducted business transactions with two or more affiliated enterprises during a tax year， the enterprise shall complete separate Returns.

　　Returns are divided into “Category A” and “Category B” Returns. Category A Returns are applicable to enterprises whose business transactions fall in a single category and are the same in terms of substance， and Category B Returns are applicable to enterprises whose business transactions fall into several categories and are different in terms of substance.

　　Article 6　If an enterprise is unable to file a Return within the prescribed time limit due to special circumstances， it shall submit an application to the competent tax authority within the prescribed time limit for submission.　Following approval， the time limit may be extended appropriately， but not for more than 30 days.

　　Article 7　If an enterprise fails to submit annual Returns on business transactions with its affiliated enterprises to the competent tax authority within the prescribed time limit， the competent tax authority shall order it to submit the same within a specified³⁰ period and may impose on it a fine of not more than Rmb 2，000 in accordance with Article 62 of the Tax Levy and Collection Administration Law.　If the situation is serious， it may be fined not less than Rmb 2，000 and not more than Rmb 10，000.

　　PART THREE　DETERMINATION OF THE VOLUME OF BUSINESS TRANSACTIONS BETWEEN AFFILIATED ENTERPRISES

　　Article 8　The volume of business transactions between affiliated enterprises shall be conscientiously³¹ classified， consolidated³³， analyzed³⁵ and determined³⁶ according to the categories and nature of the business transactions， based on the Returns filed by the enterprise and by comparison against the Form for Determination of the Affiliation Between Affiliated Enterprises completed according to the criteria for affiliation.

　　Article 9　The categories and substance of business transactions between affiliated enterprises mainly include the following：

　　1. sale， purchase， assignment and use of tangible property， including the business of selling， purchasing， assigning and leasing tangible property such as buildings， other structures， means of transportation， machinery³⁷， tools and merchandise （products）；

　　2. assignment and use of intangible property， including the business of assigning ownership of， or providing the right to use， proprietary rights such as leaseholds³⁸， copyrights， trademarks⁴⁰， brand names， patents and proprietary technology and industrial property rights such as industrial product designs or utility models；

　　3. financing， including the business of all types of long- and short-term call loans and security， sale and purchase of negotiable instruments， and all kinds of interest-bearing advances and deferred⁴¹ payments， etc.； and

　　4. provision of services， including the provision of services such as marketing⁴² surveys， marketing， management， administrative work， technical services， maintenance， designing， consultancy， agency， scientific research， legal services and accounting⁴³ services.

　　Article 10　Determination of the volume of transactions between affiliated enterprises.

　　According to the nature of the business transactions， the amounts of the prices or fees actually paid or received for business transactions of the following types shall be the volume of transactions between affiliated enterprises：

　　1.　the amounts of the prices actually paid or received for the product （merchandise） sale and purchase business between the enterprise and its affiliated enterprises；

　　2. the amounts of financing between the enterprise and its affiliated enterprises， and the interest accrued⁴⁴ thereon （including all relevant fees）；

　　3. the amounts of service fees actually paid or received for the provision of services between the enterprise and its affiliated enterprises；

　　4. the amounts of the fees actually paid or received for the assignment of tangible property and the provision of the right to use tangible property， etc. between the enterprise and its affiliated enterprises； and

　　5. the fees and amounts actually paid or received for the assignment of intangible property and the provision of the right to use intangible property， etc. between the enterprise and its affiliated enterprises.

　　Tax auditing personnel shall annually⁴⁵ examine the aforementioned five categories of transactions and enter the results in the respective forms mentioned below， which shall be signed by the enterprise as confirmation⁴⁶：

　　a. Form for Determination of the Volume of Affiliated Transactions Between Affiliated Enterprises；

　　b. Statistical⁴⁷ Form for Details of the Buyers of Products （Merchandise） Sold；

　　c. Statistical Form for Details of the Materials （Merchandise） Purchasing Sources；

　　d. Statistical Form for Details of Financing；

　　e. Statistical Form for Details of the Provision of Services；

　　f. Statistical Form for the Assignment of Tangible Property and the Provision of the Right To Use Tangible Property； and

　　g. Statistical Form for the Assignment of Intangible Property and the Provision of the Right To Use Intangible Property.

　　PART FOUR　SELECTION OF INVESTIGATION AND AUDITING TARGETS

　　Article 11　Within two months of receiving a Return filed by an enterprise， the competent tax authority shall comprehensively and systematically⁴⁸ carry out an overall analysis and comparison of the annual sales or business revenue， costs， expenses， profitability rate， etc. of the enterprise in the current year or the previous years， in the light of the determined volume of business transactions between affiliated enterprises and the results of examination and verification of the annual financial statements and accounting statements filed by the enterprise for the current year or the previous years. In addition， they shall carry out a preliminary analysis of the prices received or paid in the business transactions between the enterprise and its affiliated enterprises and assess whether or not the enterprise's production and business activities comply with standard business conventions. Thereupon， they shall complete a Form for Basic Details of an Enterprise and a Form for Analysis of the Production and Business Situation Over the Years， which shall be confirmed by the enterprise. On the basis of the foregoing， the competent tax authority shall screen the enterprises to be prime targets for investigation and auditing.

　　Article 12　The general principles for the selection of prime targets for investigation and auditing are set forth⁴⁹ below：

　　1. enterprises whose rights to decide on the administration of production and business operations are controlled by affiliated enterprises；

　　2. enterprises that have business transactions of relatively⁵⁰ large amount with affiliated enterprises；

　　3. enterprises that have been suffering losses for a long time （for more than two consecutive⁵¹ years）；

　　4. enterprises that have been earning very small amounts of profits or suffering very small amounts of losses but continuously expand their scale of business；

　　5. enterprises with inconsistent profits （i.e. enterprises that earn a profit or suffer a loss every other year and go against the convention of obtaining business returns）；

　　6. enterprises that conduct business transactions with affiliated enterprises established in tax havens⁵²；

　　7. enterprises whose profit margin⁵³ is below the industry average （compared to the profit margin in the industry in their own area）；

　　8. enterprises that belong to a group of companies and whose profit rate is low compared to the other enterprises in the group （i.e. enterprises whose profit rate is lower than that of their affiliated enterprises）；

　　9. enterprises that devise a variety of headings to pay various unreasonable⁵⁴ fees to their affiliated enterprises； and

　　10. enterprises that avoid tax by using statutory tax exemption⁵⁵ or reduction periods or by causing their profits to suddenly reduce upon expiration⁵⁶ of their tax exemption or reduction period， and enterprises that are suspected of otherwise avoiding taxes.

　　Article 13　The annual percentage of enterprises actually investigated and audited⁵⁷ shall generally be not less than 30% of the enterprises selected as prime targets for investigation.

　　Article 14　After an enterprise has been determined to be a prime target for investigation and auditing， a Form for Approval of Tax Auditing and Investigation of an Enterprise's Transfer Pricing shall be completed in the light of the dubious⁵⁸ issues of the enterprise. After the form has been examined and approved by the competent leaders， the matter shall be handed to the investigation and auditing personnel， who shall organize the inspection.

　　PART FIVE　IMPLEMENTATION OF INVESTIGATION AND AUDITING

　　Article 15　Competent tax authorities at all levels shall have the right to investigate issues of transfer pricing between an enterprise and its affiliated enterprises. An enterprise under investigation must truthfully report details of its business transactions and provide relevant documentation.　It may not refuse to do so or conceal⁶⁰ information.

　　Article 16　Desk audits⁶¹ and preparation.

　　Before investigating and auditing a selected investigation target， the auditing personnel shall carry out an overall analysis of the functions of the enterprise and its affiliated enterprises and shall fully⁵⁹ familiarize themselves with details of the enterprise to be investigated such as the contents and forms of its production and operation activities， its method of determining revenue， financial accounting and pricing， its tax payments， etc.

　　1. depending on the audit， the following tax-related documentation of the enterprise may be transferred for examination：

　　a. relevant approval documents from the government and its subordinate administrative departments；

　　b. business and tax registration⁶² certificates；

　　c. investment and operation contracts， articles of association and feasibility study reports；

　　d. annual final financial statements and accounts， and audit reports prepared by a certified⁶³ public accountant；

　　e. documentation such as relevant account books and vouchers⁶⁴ and the contracts and agreements， etc. concerning its business transactions； and

　　f. other relevant documentation.

　　2. Key items to be analyzed：

　　a. amount of profit （loss） and rate of return （loss） on investment or sales；

　　b. integrity of sales revenue；

　　c. reasonableness of expenditure⁶⁵ for costs and expenses；

　　d. level of the interest rate on funds lent and borrowed； and

　　e. reasonableness of the prices for assignment or use of tangible and intangible property.

　　During desk auditing， the following shall be completed according to the items audited： Form for Domestic Sales and Exports of Products （Merchandise）， Form for Analysis of Product Costs， Form for Analysis of Production Costs， Sales Revenue and Sales Costs of Main Products and Expense Analysis Form.

　　Article 17　Field audits.

　　In field audits， personnel are sent directly to carry out inspection and obtain evidence inside the premises⁶⁶ of an enterprise by observing on the spot the administrative departments， workshops and warehouses⁶⁷ of the enterprise， inspecting relevant information such as account books， vouchers and sales and purchase contracts and listening to briefings， explanations of issues and clarifications given by relevant personnel of the enterprise， in respect of issues that were difficult to ascertain⁶⁸ during the investigation personnel's desk auditing of the information filed by the enterprise and information such as its price and fee standards.

　　1. The plan for a field audit shall be drawn⁶⁹ up by the competent tax authority's dedicated person in charge thereof and be implemented⁷⁰ after it has been approved by the leaders one level higher. The work plan shall include the timing⁷¹ of the audit， the participating personnel， the items and contents to be investigated and the specific auditing method intended to be used.

　　2. At least two personnel must participate in the field audit and they must present their Tax Inspection Card （also to be used by foreign-related taxation personnel）。

　　3. The enterprise shall be notified by letter of the time， place and content of the audit three to seven days in advance.

　　4. With respect to the account books， vouchers and relevant documentation that need to be transferred from the enterprise for examination purposes， relevant handover procedures shall be carried out in accordance with the relevant provisions of the Tax Levy and Collection Administration Law. Such account books， vouchers and relevant documentation shall be taken care of properly and be returned to the enterprise in their entirety according to the statutory time limit.

　　5. A record must be made of problems and circumstances discovered in the course of carrying out an inspection and obtaining evidence in the field.　Such record must be signed by personnel of the investigated enterprise as confirmation. If personnel of the investigated enterprise refuse to sign the record， it may be signed by more than two investigation personnel as confirmation and placed on file.

　　6. The investigation personnel shall have an obligation to maintain the confidentiality⁷² of the relevant details of the enterprise that are being investigated and may not disclose the same to any third party.

　　Article 18　According to Article 51 of the Tax Levy and Collection Administration Law Implementing Rules， the competent tax authority shall have the right to require an enterprise to provide information such as the price and fee standards for the relevant transactions related to its business transactions with its affiliated enterprises when filing a case for audit and investigation of the business transactions between an enterprise and its affiliated enterprises. However they shall issue to the enterprise a written Notice on Provision of Specific Information Concerning Business Transactions With Affiliated Enterprises. The Notice must list in detail the type of the affiliated transaction， contents， scope， time period referred to， quantity and amount of money that are related to the specific information so provided. Such information shall mainly include the following：

　　1. details of transactions with affiliated enterprises and third parties， e.g. sales and purchases， borrowing and lending of funds， provision of services， assignment of tangible and intangible property and provision of the right to use tangible and intangible property， etc.；

　　2. principles of transfer pricing， which include the breakdown⁷³ of pricing factors， e.g. quantity， place， form， trademark³⁹， method of payment， etc. involved in transactions； and

　　3. other relevant information concerning the determination of the basis for the transaction prices or collection （or payment） of fees.

　　After receiving the Notice on Provision of Specific Information Concerning Business Transactions With Affiliated Enterprises from the competent tax authority， an enterprise shall provide the information timely， completely， truthfully and accurately⁷⁴ within the time limit stipulated⁷⁵ in the Notice （which shall not exceed 60 days at maximum）。 If for special reason such information cannot be provided within the time limit， a written application for extension shall be submitted to the competent tax authority. Once approved， the time limit for submission may be extended， but the extension may not exceed 30 days at maximum. The competent tax authority shall issue a written reply within five days of receipt of the application for extension from the enterprise. If the time limit has lapsed⁷⁶ or if there is no written reply， it shall be deemed that the competent tax authority has accepted the application for extension from the enterprise. If an enterprise fails to provide such information as the relevant prices or fee standards within the stipulated time limit （including the extension）， it shall be subject to punishment according to Article 62 of the Tax Levy and Collection Administration Law. If false information is provided and details are not reflected truthfully， or if an enterprise refuses to provide the relevant information， it shall be subject to punishment according to Article 96 of the Tax Levy and Collection Administration Law Implementing Rules.

　　Article 19　Investigation elsewhere in China.

　　If the substance of an investigation and audit conducted by a competent tax authority regarding transfer pricing of an enterprise involves another area within the same province or involves more than one province， autonomous region， municipality directly under the central government or municipality with independent development plans， the relevant tax bureaux shall be requested to assist with the investigation. If cross-province （autonomous region， municipality directly under the central government and municipality with independent development plans） audit and investigation and obtaining of evidence due to actual work needs， it shall be reported to the State Administration of Taxation level by level upward for approval.

　　1. If the other area is within the same province， autonomous region， municipality directly under the central government or municipality with independent development plans， the competent tax authority in charge of the place where the enterprise is located shall hold direct consultations⁷⁸ with the relevant tax bureaux on the matter of assistance.

　　2. If more than one province， autonomous region， municipality directly under the central government or municipality with independent development plans is involved， the tax authority in charge of the place where the enterprise is located shall complete a Contact Form for Investigation of Transfer Pricing Between Affiliated Enterprises and submit the same to the competent tax authority of their own province， autonomous region， municipality directly under the central government or municipality with independent development plans. Thereupon， the said competent tax authority shall contact the competent tax authority of the relevant province or municipality. The competent tax authority of the relevant province or municipality shall reply in writing within 20 days of its receipt of the contact form.

　　3. If， during an investigation of issues concerning transfer pricing between an enterprise and its affiliated enterprises， the competent tax authority discovers evidence of transfer of income or profit through transfer pricing between the enterprise and an affiliated enterprise that is located elsewhere， they shall on their own initiative notify the tax authority of the place where the affiliated enterprise is located， whereupon the two tax authorities shall assist each other and carry out a joint⁷⁹ investigation to verify the evidence.

　　4. If a competent tax authority needs to conduct on-site transfer pricing audit and investigation and obtaining of evidence across provinces， autonomous regions， municipalities directly under the central government and municipalities with independent development plans， the detailed⁸⁰ situation （including the time， place， target and particulars of the investigation， etc.） shall be reported in writing to the State Administration of Taxation level by level upward for approval before implementation.

　　Article 20　The tax authorities at all levels shall use all methods and all channels to collect extensive information on the charging standards for prices and fees on domestic and foreign markets， etc. and shall gradually build a computerized price information network. The State Administration of Taxation is in charge of collecting relevant information from the ministries⁸¹ and commissions and from abroad. The tax authorities of the provinces， autonomous regions， municipalities directly under the central government and municipalities with independent development plans shall， if capable， separately or jointly⁸² establish information centres， which shall collect， store and keep the information filed by taxpayers⁸³ over the years， the market prices of major items of merchandise， interest rates within a particular trade or industry， loan interest rates， and information on the organizational structure， management features and internal transaction methods of multinational⁸⁴ companies. The said tax authorities shall make efforts to enable the information under their control to be shared within the tax system and properly respond to inquiries⁸⁵ and provide information.

　　Article 21　Inquiries about price information and transfer of price information for examination purposes.

　　1. When any competent tax authority needs to make inquiries about relevant price information from a central ministry⁸⁶ or commission or from abroad， it shall conscientiously complete a Form for Registration of a Price Information Inquiry⁸⁷ or a Form for Investigation of Business Transactions Between Affiliated Enterprises， accompanied by information concerning the investigation. In the said form， the tax authority shall truthfully set forth in detail the specific substance of the business under investigation， including the category of the business； the name， specifications⁸⁸ and model of the merchandise； the place of sale （purchase）， the method， quantity and conditions of sale （purchase）； the charging standards， etc. In addition， it shall specify⁸⁹ the issues and suspicions to be investigated and verified. Following examination and approval of the form by the relevant tax authority of the province， autonomous region， municipality directly under the central government or municipality with independent development plans， it shall be submitted as classified document to the State Administration of Taxation for action.

　　Within 30 days of receipt of a registration form or investigation form， the competent department of the State Administration of Taxation shall notify the inquiring unit of the charging standards （no fee shall be charged if the inquiry is made through the information exchange system） and the relevant details. Once the matter has been investigated and verified， all local authorities shall be notified in writing of the result. If the matter cannot be verified， such failure shall also be notified in a timely manner， together with an explanation of the reasons therefor.

　　2. If tax authorities of provinces， autonomous regions， municipalities directly under the central government or municipalities with independent development plans entrust⁹⁰ each other with conducting investigations⁹¹ or obtaining price information， they shall complete Contact Forms for Investigation of Transfer Pricing Between Affiliated Enterprises， and the entrusted⁹² authorities shall actively⁹³ and conscientiously carry out the investigation or obtain the information in accordance with the requirements and contents specified by the entrusting⁹⁴ authorities， and shall reply in a timely manner.

　　3. The procedures for conducting investigations or obtaining price information by a tax bureau within its own province， autonomous region， municipality directly under the central government or municipality with independent development plans shall be determined by the tax bureau of such province， autonomous region， municipality directly under the central government or municipality with independent development plans itself.

　　Article 22　Investigation abroad.

　　During the audit and investigation of transfer pricing of an enterprise by a competent tax authority， if it is truly necessary to obtain information and materials such as the relevant comparable price or economic conditions from abroad， the State Administration of Taxation may be requested to implement so through the information exchange procedure as agreed in tax treaties； or investigation and collection of the relevant information and materials on comparable price may be conducted through resident institutions of China abroad upon approval. Where it is necessary to despatch⁹⁵ personnel to the relevant country （or special administrative region） to conduct on-site audit， investigation and obtaining of evidence， the matter shall be reported to the State Administration of Taxation level by level upward for approval according to the relevant provisions of tax treaties or arrangements， and provisions on external affairs administration.

　　PART SIX　PRESENTATION OF EVIDENCE BY THE ENTERPRISE AND VERIFICATION BY THE TAX AUTHORITIES OF EVIDENCE PRESENTED

　　Article 23　Adjustments by competent tax authorities in respect of an enterprise's transfer pricing are based mainly on the information filed by the enterprise. Accordingly， the evidence presented by an enterprise shall be conscientiously verified and analyzed， including analysis of the function of the affiliated enterprise， analysis of the factors affecting price and profit， etc.

　　Article 24　In the course of the investigation and auditing of an enterprise's transfer pricing by the competent tax authority， the enterprise must present evidence of the normality and reasonableness of the transfer pricing in business transactions involving affiliated enterprises：

　　1. Sale and purchase of tangible property. The enterprise shall mainly provide the following information on the merchandise （products） that is （are） the subject matter of the inter-affiliate transactions： the fame and popularity of the brand， the function and market position of each affiliated enterprise， the seasonal⁹⁶ fluctuations⁹⁷ in selling prices， the extent of the influence of intangible assets on the merchandise （products）， the quality grade， the performance， the pricing method， etc.

　　2. The assignment and use of intangible property. The enterprise shall mainly provide the following information： the intangible property involved in the transaction and the conditions for assignment thereof （including the territorial⁹⁸ limits， scope of the licence， etc.）， the exclusive possession and the period for which it may be maintained， the value of the services， such as technical support and personnel training provided by the assignor， the cost of maintaining the value of the trademark （including advertising⁹⁹， promotion¹⁰⁰ and quality control costs）， the assignee‘s anticipated profit or cost savings¹⁰¹ resulting from the use or assignment of the property， the composition and method of payment of the price， etc.

　　3. The provision of services. The enterprise shall mainly provide the following information： whether the acceptance of services rendered by the affiliated enterprise genuinely benefited the enterprise， whether the standard for the service fee paid or received was reasonable， whether the related direct and indirect cost and profit margin were reasonable， etc.

　　4. Financing. The enterprise shall mainly provide information on the usual level of interest rate involved in the financing business and the reasonableness of the substance of the various fees involved in the financing business， etc.

　　Article 25　The investigating and auditing personnel shall conscientiously arrange， consolidate³²， prepare statistical estimates on， analyze³⁴ and verify the evidence presented by enterprises. On the basis thereof， the said personnel shall fill out the following relevant tables： Detailed Table of Transactions Between an Enterprise and Its Affiliate， Table for Classification of Transactions Between an Enterprise and Its Affiliate， Consolidated Table of Transactions Between an Enterprise and Its Affiliate， Detailed Table of Transactions Between Non-affiliated Enterprises （Foreign Resale）， Table for Classification of Transactions Between Non-affiliated Enterprises （Foreign Resale）， Consolidated Table of Transactions Between Non-affiliated Enterprises （Foreign Resale）， and the Statistical Table on Verification of the Specific Information Provided by an Enterprise in Connection With Business Transactions With Affiliated Enterprises.

　　Article 26　To verify the evidence presented by an enterprise， the tax authority may carry out investigation and verification through the price inquiry procedure （see Part Five hereof）。 If the evidence presented comes from abroad， the tax authority shall require the enterprise to provide a certificate from a local notary¹⁰² public's office and may additionally request a resident institution of China to assist with its inquiries.

　　PART SEVEN　SELECTION OF THE ADJUSTMENT METHOD

　　Article 27　If the prices or fees for business transactions between an enterprise and its affiliated enterprise are not collected or paid as in business transactions conducted at arm's length， thus reducing the enterprise's amount of taxable revenue or income， the competent tax authority shall adopt an appropriate adjustment method on the basis of the category and nature of the inter-affiliate business transactions and the audit results， having given consideration to the relevant factors.

　　Article 28　Methods of adjustment of transfer pricing in purchase and sale of tangible property.

　　1. Adjustment according to the prices for the same or similar business activity conducted at arm‘s length （also known as the “comparable uncontrolled price method”）， i.e. the determination of fair transaction price by analyzing¹⁰³ and comparing the prices in business transactions between the enterprise and its affiliated enterprise with the prices in business transactions between the enterprise and non-affiliated enterprises.

　　When this method is used， the comparable factors of the selected transactions and the inter-affiliate transactions must be taken into account：

　　a. the comparability of the sale and purchase process， including the time and place of the transaction， the delivery terms， the delivery procedures， the payment conditions， the quantity transacted¹⁰⁴， and the time and place of after-sale services， etc.；

　　b. the comparability of the sale and purchase stages， including the ex-factory stage， the wholesale¹⁰⁵ stage， the retail¹⁰⁶ stage and the export stage， etc.；

　　c. the comparability of the goods bought and sold， including their name， brand， specifications， model， functions， structure， external appearance and packaging， etc.；

　　d. the comparability of the sale and purchase environment， including the social environment （national customs， consumer preferences， etc.）， political environment （degree of political stability， etc.） and economic environment （finance， tax and foreign exchange policies， etc.）。

　　2. Adjustment according to the profit margin that should be generated from the price for resale to a non-affiliated third party （also known as the resale price method）， i.e. the selling affiliate's normal selling price is the balance of the sales revenue obtained by the buying affiliate when it resells the merchandise （products） purchased from the selling affiliate to a non-affiliated third party， less the reasonable expenses incurred¹⁰⁷ and the profit earned （calculated according to normal profit margins¹⁰⁸） by the buying affiliate when it resells similar merchandise （products） purchased from a non-affiliated enterprise to a non-affiliated third party.

　　Use of this method shall be limited to simple processing or pure sale and purchase， where the reseller has not processed the merchandise （products） in a way that materially adds value （such as alteration¹⁰⁹ of external appearance， functions or structure， change of trademark， etc.）。　Moreover， the selection and determination of the profit margin to be obtained by the reseller shall be reasonable.

　　3. Adjustment according to cost plus reasonable expenses and profit （also known as the cost-plus method）， i.e. the fair transaction price is the selling affiliate's cost of the merchandise （products） plus normal profit.

　　When this method is used， attention must be paid to ensure that the calculation of costs and expenses conforms to the relevant provisions of Chinese tax law and that the cost-profit ratio applied¹¹⁰ is selected and determined reasonably.

　　4. Other reasonable methods. If none of the three adjustment methods described above can be applied， adjustment may be carried out by adopting another reasonable substitution method， such as the comparable profits method， the profit allocation method， the net profit method， etc. When using other reasonable methods， the key factor is to pay attention to the comparativeness， reasonableness and the conditions of use of such methods.

　　5. Upon application by the enterprise and approval by the competent tax authority， pre-agreed pricing may also be used for business transactions between affiliated enterprises in the future according to Article 53 of the Tax Levy and Collection Administration Law Implementing Rules.

　　6. Where an enterprise fails to provide information such as the prices and fee standards of its business transactions with its affiliated enterprises according to the schedule， or where false information is provided； or where the real situation is not reflected； or where an enterprise refuses to provide the relevant information， the competent tax authority shall verify and make a decision by using a reasonable method according to Article 47 of the Tax Levy and Collection Administration Law Implementing Rules， and adjust the amount of taxable revenue or income.

　　Article 29　Adjustment of interest on financing between affiliated enterprises with reference to normal interest rate levels.

　　When making adjustments， attention shall be paid to the loan business between the enterprise and its affiliated enterprise and the loan business between the enterprise and non-affiliated enterprises in terms of the comparability of aspects such as the amount， currency and term of the financing， the security provided， the creditworthiness of the financing party， the method of repayment¹¹¹， the method of calculating interest， etc.

　　With respect to financing business where the creditor¹¹² borrows funds from another party and subsequently lends the same on to the debtor¹¹³， normal interest may be taken to be the interest actually paid by the creditor plus the creditor's costs or expenses and reasonable profit.

　　Article 30　Adjustment of service fees between affiliated enterprises with reference to the normal charging standards for similar service activities.

　　When making adjustments， attention shall be paid to the provision of services between the enterprise and its affiliated enterprise and the provision of services between the enterprise and non-affiliated enterprises in terms of the comparability of aspects such as the nature of the business， the technical requirements， the level of specialization， the liability undertaken， the terms and method of payment， the direct and indirect costs， etc.

　　Article 31　Adjustment of use fees （rentals¹¹⁴） received or paid by affiliated enterprises for provision of the right to use tangible property in the form of lease， etc.

　　1. Adjustment according to the normal fee received or paid by non-affiliated enterprises for providing the use of the same or similar tangible property on the same or similar conditions. “Same or similar conditions” mainly refer to the functions， specifications， model， structure， type and depreciation¹¹⁵ method of the property provided for use， the period for which and the place where the property is provided for use， and the investment expenditure and maintenance fees for the property incurred by the owner of the property are comparable.

　　2. With respect to the use fees （rentals） received by the provider for tangible property leased by the provider from another party and subsequently re-leased to the user， the determination of the normal use fee may be made according to the lease fee or use fee actually paid by the provider plus the provider's costs or expenses and reasonable profit.

　　3. Depending on the key components of the lease fee， the normal use fee may be the depreciation of the property plus reasonable expenses and profits， and adjustments shall be made on the basis thereof.

　　Article 32　Adjustment of the price fixed¹¹⁶ or use fee received for assignment of intangible property between affiliated enterprises with reference to the amount that would be agreeable in the absence of the affiliation.

　　When making adjustments， attention shall be paid to taking into account the comparability of the assignment of intangible property between the enterprise and an affiliated enterprise and the assignment of intangible property between the enterprise and non-affiliated enterprises in terms of investment in development， conditions of the assignment， degree of exclusive possession， extent and period of protection under relevant State laws， benefits obtained by the assignee as a result of the assignment， the assignee's investment and expenses， substitutability， etc.

　　PART EIGHT　EFFECTING OF TAX ADJUSTMENT

　　Article 33　On the basis of accurate evidence of the fact of transfer pricing obtained by means of a strict audit and an investigation， and after further estimation， discussion and comparative analysis， the method of tax adjustment shall be determined and a preliminary adjustment plan drawn up.

　　Article 34　Internal deliberation.

　　After the preliminary adjustment plan has been determined， the investigation and auditing personnel shall prepare written materials， which shall cover the following： the fact of transfer pricing， the legal basis for tax adjustment， the grounds for selection of the adjustment method， the result of the adjustment and relevant explanations. The said materials shall be submitted to the relevant department （office） and the deliberation committee for deliberation. During such deliberation， a common understanding shall be reached and a preliminary opinion of the competent tax authority shall be formed.

　　Article 35　Consultation⁷⁷ with the enterprise.

　　The competent tax authority may present the deliberated opinion on adjustment to the enterprise in writing or in a meeting， and request the enterprise to comment. If the enterprise objects to the decision， it may， within the time limit set by the tax authority， provide relevant evidence sufficient to show that the price was reasonable. After the competent tax authority has received the evidence submitted， it shall verify the evidence carefully and make a decision within a maximum of 30 days. During the consultations with the enterprise， the personnel participating therein shall make ample preparations. During each consultation， both sides shall designate chief representatives. The minutes shall be taken by a member of the investigation and auditing personnel. The minutes of the consultations shall be signed by the chief representative of each side. If the enterprise subject to tax adjustment refuses to sign the minutes， they may be signed by more than two investigation personnel as confirmation and placed on file.

　　Article 36　Submission of tax treatment and adjustment of the amount of tax for approval.

　　1. The investigation and auditing personnel shall complete a Form for Submission of Tax Treatment of Transfer Pricing and Adjustment of the Amount of Tax on Transfer Pricing for Approval according to the decision reached upon deliberation， and submit such form to the leaders of the competent tax authority for examination and approval.

　　2. The following shall be covered： the basis for examination and determination of the subject matter of adjustment， the adjustment method selected， the taxable revenue or income to be adjusted and the amount of tax. The form shall be accompanied by information on the basic facts of the enterprise and the relevant basis for the adjustment.

　　3. The leaders of the competent tax authority shall carry out examination and approve or reject the form within 20 days after their receipt of the examination and approval form.

　　4. Within five days after their receipt of the approved examination and approval from， the investigation and auditing personnel shall complete a Notice of Adjustment of the Amount of Taxable Revenue or Income in Connection With Transfer Pricing and the annexes¹¹⁸ thereto， give written notice to the enterprise subject to tax adjustment and carry out the procedures for signature for receipt thereof.

　　Article 37　Time limit of auditing and investigation， and retroactive adjustment.

　　1. The auditing and investigation， and adjustment of transfer pricing of an enterprise by the competent tax authority shall in general be carried out within three years of the formal transmission of the audit notice to the enterprise. If， due to special circumstances， there is a need to extend the time limit for auditing and investigation， the extension shall be reported to the State Administration of Taxation level by level upward for approval， but it may not exceed five years at maximum.

　　2. If the auditing and investigation， and adjustment of transfer pricing of an enterprise by the competent tax authority involves taxable revenue and income in previous years， adjustment shall be made retrospectively according to Article 56 of the Tax Levy and Collection Administration Law Implementing Rules and Article 12 of the State Administration of Taxation， Several Specific Issues Concerning the Implementation of the and Its Implementing Rules Circular [Guo Shui Fa （2003） No. 47]， up to a period of three years in general， and not more than 10 years at maximum.

　　Article 38　Tax payment.

　　After its receipt of a Notice of Adjustment of the Amount of Taxable Revenue or Income in Connection With Transfer Pricing issued by the competent tax authority， the enterprise shall pay the tax within the specified time limit to the competent tax collection authority under whose jurisdiction¹¹⁹ it falls. If deferment¹²⁰ of payment is truly necessary due to special reasons or circumstances， it shall complete an Application for Deferment of Tax Payment within the specified time limit. Upon approval， the time limit may be appropriately extended， up to a maximum of three months. If the enterprise does not apply for deferment of tax payment nor does it pay the tax， an additional charge for late payment and a fine shall be imposed in accordance with relevant regulations.

　　Article 39　If the adjustment of transfer pricing of a taxable amount of revenue or income requires corresponding adjustments due to its business transactions with its affiliated enterprises inside and outside China， it shall be handled in light of different circumstances according to tax laws， regulations and the relevant provisions of tax treaties.

　　1. where corresponding adjustment is required for business transactions between affiliated enterprises within the same province （autonomous region， municipality directly under the central government and municipality with independent development plans）， the enterprise that requires the corresponding adjustment shall report to the tax authority of the province， autonomous region， municipality directly under the central government and municipality with independent development plans at a higher level in writing with information such as the basis， content， specific calculation， etc. of the adjustment. After examination and verification by the competent tax authority， it shall be reported to the tax authorities level by level upward of province， autonomous region， municipality directly under the central government and municipality with independent development plans for approval.

　　2. where corresponding adjustment is required for business transactions between affiliated enterprises across provinces （autonomous regions， municipalities directly under the central government and municipalities with independent development plans）， the enterprise that requires the corresponding adjustment shall report to the tax authority of the province， autonomous region， municipality directly under the central government and municipality with independent development plans at a higher level in writing with information such as the basis， content， specific calculation， etc. of the adjustment. After examination and verification by the competent tax authority， it shall be reported to the State Administration of Taxation level by level upward for approval.

　　3. where corresponding adjustment is required for business transactions between affiliated enterprises across countries， it shall be handled according to the provisions of clauses on affiliated enterprises， consultation procedure and information exchange stipulated in tax treaties. Enterprises that require corresponding adjustments shall first obtain the consent of the competent tax authority of the country that signed the treaty， and the information such as the basis， content， time limit and specific calculation， etc. of the adjustment shall be reported to competent tax authority at a higher level in writing. After examination and verification by the competent tax authority， it shall be reported to the State Administration of Taxation level by level upward and be handled according to the procedure.

　　4. in case of a business transaction between affiliated enterprises that requires corresponding adjustments where three years have lapsed since the formal transmission of the Notification on Transfer Pricing of Taxable Income or Taxable Amount Adjustment by the competent tax authority， the competent tax authority may refuse to handle adjustment thereof.

　　PART NINE　REVIEW AND LITIGATION

　　Article 40　If an enterprise objects to the tax adjustments made to its transfer prices， it must first pay tax and a late-payment fine according to laws and administrative regulations and may subsequently， within 60 days from the date on which it receives the payment receipt issued by the competent tax authority， apply to the tax authority at one level higher for a review. In addition， it shall provide information such as the relevant price and fee standards， etc. The tax authority shall not review the adjustments if no or insufficient¹²¹ information is provided within the time limit for making an application for review. The tax authority at one level higher shall make a decision upon review within 60 days from the date on which it receives the application for review. If the enterprise is dissatisfied with the decision made upon review， it may institute proceedings¹²² in a people's court within 15 days from the day on which it receives such decision.

　　Article 41　If an enterprise is dissatisfied with the punishment decision made by the competent tax authority in accordance with the relevant provisions hereof， it may， within 15 days from the date on which it receives the notice of punishment， apply for a review by the tax authority at one level above the tax authority that made the punishment decision. If the enterprise is dissatisfied with the decision made upon review， it may institute proceedings in a people's court within 15 days of the day on which it receives such decision. Alternatively， the enterprise may institute proceedings in a people's court within 15 days from the date on which it receives the notice of punishment. If the enterprise neither applies for review or institutes proceedings in a people‘s court within the time limit nor acts according to the punishment decision， the tax authority that made the punishment decision may apply to a people's court for mandatory¹²³ enforcement.

　　PART TEN　FILES AND FILING

　　Article 42　Within 15 days after having made adjustments in respect of any enterprise， the investigation personnel shall be responsible for preparing a case report and submitting the same to the competent tax authority at one level higher， in order to accumulate information and summarize the experience gained.　The basic contents of files shall include the following：

　　1. basic details of the enterprise， including its economic nature， registered capital， total amount of investment， investment ratio of each party， scope of business， business transactions with affiliated enterprises， etc.；

　　2. basic details of the case， including the types， quantities， prices and conditions， etc. of the transactions between the enterprise and its affiliated enterprises， the main methods of transfer pricing， etc.；

　　3. details of the investigation and the obtaining of evidence， including an analysis of factors relating to the production and business operations， details of the examination and verification of information on prices and fees， etc.； and

　　4. details of the adjustment to the taxable revenue or income， including the considerations behind the choice of adjustment method and details of the determination of the adjustment to the amount of taxable income.

　　Article 43　Prior to 31 December each year， all competent tax authorities shall collect and consolidate the case reports， complete a Consolidated Table of Case Reports on Transfer Pricing Between Affiliated Enterprises and submit the same to the competent tax authorities at one level higher.

　　Article 44　Safekeeping of price information documents.

　　1. All competent tax authorities shall classify the original price information documents collected and bind¹²⁴ them into annual volumes.

　　2. All competent tax authorities shall make and keep up-to-date backup copies of price information data stored in computers， so as to restore the original database in case the computer system is sabotaged¹²⁵.

　　Article 45　Information filed by enterprises concerning transfer pricing such as price and fee standards， and price information obtained during investigation and the taking of evidence， shall be secret information that may be used only by tax authority personnel responsible for investigation， tax collection and enforcement or by the court in which legal proceedings in connection therewith are held， and may not be divulged¹²⁶ to third parties. If such information truly needs to be supplied to relevant authorities， it may be supplied only upon approval by the bureau leader. Anyone who divulges¹²⁷ information obtained during investigation and the taking of evidence or price information shall be dealt with in accordance with the relevant provisions of tax laws and laws on the maintenance of State secrets.

　　Article 46　Following the adjustment of transfer pricing in business transactions between an enterprise and its affiliated enterprise， the investigation personnel shall classify， bind and file the relevant information and record the relevant data in the “anti-tax-avoidance information software system”。 Information of each category shall be kept for not less than five years； however， such time limit shall not apply to information involved in court cases. Where files need to be transferred internally for purposes of access， the procedures for file transfer for access purposes shall be carried out.

　　PART ELEVEN　FOLLOW-UP ADMINISTRATION

　　Article 47　Wherever a tax authority carries out tax adjustment of business transactions between an enterprise and its affiliated enterprise， the competent tax authority shall， in the course of their routine administration of tax collection， implement follow-up tax supervision¹²⁸ and control for a period of three years commencing with the first year after the adjusted year. Such follow-up supervision and control shall mainly include the following：

　　1. the state of the enterprise‘s investments and business operations， and any changes therein；

　　2. changes in the amounts of the enterprise‘s tax returns；

　　3. appraisal¹²⁹ of the enterprise‘s business results by means of analysis of its annual financial and accounting statements； and

　　4. changes in the business transactions between the affiliated enterprises， etc.

　　During the term of follow-up tax supervision and control， the competent tax authority shall immediately take appropriate measures if it discovers any tax abnormalities in respect of the enterprise.

　　Article 48　Adoption¹³⁰ of the method of advance pricing arrangement.

　　In order to reduce the cost of tax audits in connection with transfer pricing in business transactions between affiliated enterprises， enterprises shall be permitted to propose principles and calculation methods for transfer pricing in the course of trading between the enterprise and its affiliated enterprises. After the competent tax authority has analyzed and confirmed such principles and methods， enterprises shall use the same as the basis for calculating the deemed taxable income of the enterprise from transactions with its affiliated enterprises or for determining a reasonable range of sales profit rates. Any enterprise that wishes to use the method of advance pricing arrangement shall submit an application and relevant information， and complete an Application Form for Confirmation of Advance Pricing. Following examination and approval， the competent tax authority shall execute an advance pricing agreement with the enterprise and supervise the implementation thereof.

　　PART TWELVE　SUPPLEMENTARY¹³¹ PROVISIONS

　　Article 49　All documents and forms mentioned herein are set forth in an Annex¹¹⁷ hereto， entitled Manuscript of the Procedures for Tax Auditing， Investigation and Tax Adjustment of Business Transactions Between Affiliated Enterprises.

　　Article 50　Enterprises other than foreign-invested enterprises and foreign enterprises in China shall be handled in accordance with these Rules.

　　Article 51　The State Administration of Taxation shall be in charge of the interpretation¹³² of these Rules.

　　Article 52　These Rules shall be implemented as of the date of promulgation. In the event of any conflict between implementing procedures for tax administration promulgated previously¹³³ and these Rules， these Rules shall prevail.

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