“Announcement of the State Administration of Taxation on Issues Relating to Corporate Income Tax on Expenses Paid by an Enterprise to its Overseas Affiliated Party” was promulgated on 18 March 2015
The State Administration of Taxation promulgated the “Announcement of the State Administration of Taxation on Issues Relating to Corporate Income Tax on Expenses Paid by an Enterprise to its Overseas Affiliated Party” (“the Notice”) on 18 March 2015.
It is stipulated in the Notice that taxation authorities can adjust the calculation of tax payable if the payments by a Chinese enterprise to an overseas affiliate are not made in accordance with the arm’s length principle. The taxation authorities can also request enterprises to submit for record contracts or agreements entered into with affiliates to prove that relevant transactions have actually occurred and other information showing that such transactions were made in accordance with the arm’s length principle. The notice also lists out several scenarios under which payments are not made in accordance with the arm’s length principle, including where holding or financing companies are established overseas, all payments made to overseas affiliates for royalties in respect of IPO financing activities are not deductible for calculation of enterprise income tax under the Notice.
The Notice came into effect on the date of its promulgation.