On 28 March 2017 the State Administration of Taxation (SAT) released its long-awaited Announcement on Special Tax Investigations, Adjustments and Mutual Agreement Procedures (“Announcement 6”). This followed on from the release of China’s revised transfer pricing (TP) compliance regulations (SAT Announcement 42) in June 2016 and rules on enhancement of advance pricing arrangement (APA) administration (SAT Announcement 64) in November 2016.
Announcement 6 includes 62 Articles and can be broadly divided into 5 parts: special tax investigations, comparability factors and transfer pricing methods, specific provisions on intangible assets, specific provision on services, mutual agreement procedures, which will be effective from 1 May 2017.
Announcement 6 integrates some of the OECD BEPS work, particularly in relation to intangibles, into domestic regulations. It also consolidates previous regulations on self-adjustments and outbound payments, and writes into regulation some of the existing practices adopted for TP audits.
With the introduction of Announcement 6, taxpayers will be able to better understand the focus points and the rationale of tax authorities when undertaking TP investigations. We foresee more standardized TP investigation practices in the future. Furthermore, given that Announcement 6 regulates both outbound payments and inbound receipts of royalty and service fees, while prior Chinese TP regulations focused mainly on outbound payments, it appears that the first steps are being taken to administer the TP of outbound-investing Chinese multinationals.
For more details on Announcement 6, please refer to KPMG China Tax Alert: SAT releases the long-awaited announcement on special tax investigations, adjustments and mutual agreement procedures (Issue 10,March 2017).
* With regard to the details and impacts of the SAT Announcement 42 and Announcement 64, please refer to the following KPMG China Tax Alert:
A notice providing guidance on TP compliance requirements for enterprises was posted to the website of the Tianjin Sino-Singapore Tianjin Eco-City State Taxation Bureau (天津市中新天津生态城国家税务局) on 27 March 2017. The notice originated from the international tax department of the SAT, clarifying certain uncertainties arising from the June 2016 revisions to TP compliance regulations set forth in SAT Announcement No. 42 (“Announcement 42”).
Announcement 42 clarifies and expands the range of related party relationships and transactions caught in the scope of China’s TP rules. It rolls out to China the BEPS Action 13 TP documentation structure, consisting of the Local File and the Master File, with an additional Chinese ‘Special File’. It also introduces the BEPS country-by-country (CBC) report as an element of the annual related party transaction reporting, the latter being expanded from 9 to 22 forms.
The above-mentioned recent SAT notice clarifies the following:
* Detailed information on Announcement 42 is set out in this KPMG Alert:
The SAT issued Announcement  No. 84 on 26 November 2015 . This sought to promote the issuance of VAT ordinary invoices via the electronic VAT invoice system. The focus of the measures was on industries with high volumes of invoices, such as e-commerce, telecommunications, courier services and public utilities.
To complement this, the SAT on 21 March 2017 issued Shui Zong Fa  No. 31. This seeks to further clarify and encourage general acceptance of e-invoices in the e-commerce, telecommunications, courier service and public utility sectors, by providing parallel access to paper invoices.
* On 16 March 2016, Beijing State Tax Bureau issued the Notice in respect of Promoting Issuance of Electronic Ordinary VAT Invoices Through the Electronic VAT Invoice System. The Notice clarifies certain issues regarding the issuance of electronic invoice, such as application procedures, generation of data and hard copies of invoices, etc. Please refer to KPMG China Tax Weekly Update (Issue 10, March 2016) for more details.
The Ministry of Finance and the SAT jointly issued Cai Shui  No. 107 (Circular 107) on 14 November 2011. This provided that carried-forward excess input VAT credits, arising from equipment purchases by state-approved integrated circuit (IC) enterprises (see detailed list), may be refunded.
In China, certain surtaxes, such as Urban Maintenance & Construction Tax (UMCT), Education Levy (EL) and Local Education Levy (LEL), are calculated and paid on the basis of VAT payable. On 24 March 2017, with the issuance of circular Cai Shui  No. 17, MOF and SAT further provide that, where an IC enterprise is entitled to get its carried forward excess input VAT credit refunded, such refundable input VAT credit shall be deducted from the tax base for calculating UMCT, EL and LEL.
* Qualified IC enterprises may, in some cases, also enjoy certain preferential Corporate Income Tax (CIT) policies, including: (i). CIT at a reduced rate of 15%; (ii). CIT “exemption for two years and 50% reduction for three years”; and (iii). CIT “exemption for five years and 50% reduction for another five years” policy. Please refer to KPMG China Tax Weekly Update (Issue 17, May 2016) for more details.
As highlighted in KPMG China Tax Weekly Update (Issue 10, March 2017), Premier Li Keqiang delivered the 2017 Report on the Work of the Government, at the opening of the 5th session of 12th National People’s Congress (NPC) on 5 March 2017. In this he noted that China will significantly reduce enterprise “non-tax” fiscal burdens, which means reducing and regularizing the imposition of various local government funds and enterprise-related fees.
To this end, on 15 March 2017 the MOF and the National Development and Reform Commission (NDRC) jointly issued a circular (Cai Shui  No. 20), it clarifies that 41 administrative fees (see details) that are set up by the central government will be cancelled or suspended on 1 April 2017, and that the charges for trademark registration are cut by 50%.