China: Completing tax related obligations for 2023 regarding related-party transactions and contemporaneous documentation
Pursuant to Announcement of the State Administration of Taxation [2016] No.42, companies might have tax related obligations under certain circumstances for the matters in relation to: (i) reporting the business transactions with related parties, (ii) submission of country-by-country report, and (iii) preparing contemporaneous documentation, including master file, local file and special issue file.
Although year 2023 has passed, the tax obligations that companies might need to complete for 2023 in China have not yet ended.
Under Announcement of the State Administration of Taxation [2016] No.42, companies might have tax obligations under certain circumstances for the following matters:
- Filing with regard to the business transactions with related parties.
- Submission of country-by-country report (CbCR).
- Preparing Contemporaneous documentation, including master file, local file and special issue file.
Filing with regard to the business transactions with related parties
i. Who shall file?
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Chinese resident enterprises that are subject to taxation on an actual basis in China and having related party transactions; and
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Non-Chinese resident enterprise which has establishments or offices in China, files and pays enterprise income tax (EIT) on an actual basis and having related party transactions.
ii. How and when to file?
Attach the Annual Report on the Related-party Transactions of Enterprises of the People's Republic of China together with the annual EIT return for 2023 by May 31, 2024.
CbCR
i. Who shall report?
The CbCR forms are required for the Chinese resident enterprises, if one of the conditions is met:
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It is the ultimate holding company of the company group with consolidated revenues of more than RMB 5.5 billion in the previous accounting period; or
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It is nominated as the CbCR reporting entity by the company group.
A subsidiary of a company group in China may also be required to submit CbCR forms in the special tax adjustment, provided that its ultimate holding company should prepare the CbCR forms according to the regulation of the jurisdiction it resides and one of the following conditions is met:
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The multinational group has not provided the CbCR forms to the tax authority of any jurisdiction;
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Although the company group has submitted the CbCR forms, the jurisdiction collecting the report has not had the exchange information mechanism with China;
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Although the multinational group has submitted the CbCR forms and the jurisdiction collecting the CbCR forms has had the exchange information mechanism with China, the CbCR has not been successfully exchanged to China.
ii. When to report?
The CbCR forms shall be submitted to the competent tax authority by May 31 following the year during which the related party transactions occur.
Contemporaneous documentation
(a) Master file
i. Who shall prepare?
Chinese enterprises with overseas related party transactions are required to prepare the master file, if they have satisfied one of the following conditions:
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The company group of the ultimate holding company has prepared master file; or
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Total annual amount of related party transactions exceeds RMB 1 billion.
In the case that the ultimate holding company has prepared master file, the Chinese resident enterprise could be obliged to prepare a Chinese version of the master file.
ii. When to prepare and when to submit?
Master file should be prepared and completed within 12 months upon the end of the accounting period of the ultimate holding company. The contemporaneous documentation shall be submitted to the competent tax authority within 30 days upon request.
(b) Local file
i. Who shall prepare?
Chinese enterprises with related party transactions are required to prepare the local file if they have exceeded one of the following thresholds:
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Annual amount of tangible assets ownership transfer exceeds RMB 200 million;
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Annual amount of financial assets transfer exceeds RMB 100 million;
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Annual amount of intangible assets ownership transfer exceeds RMB 100 million; or
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Annual amount of other types of related party transactions exceeds RMB 40 million.
ii. When to prepare and when to submit?
Local file should be prepared and completed by June 30 of the year following the year in which the related party transactions occur. The contemporaneous documentation shall be submitted to the competent tax authority within 30 days upon request.
(c) Special issue file
i. Who shall prepare?
The special issue file is required for taxpayers engaging in cost sharing agreements or falling under thin capitalization requirement.
ii. When to prepare and when to submit?
Special issue file should be prepared and completed by June 30 of the year following the year in which the related party transactions occur. The contemporaneous documentation shall be submitted to the competent tax authority within 30 days upon request.
In case that there are related party transactions with domestic related parties only, the contemporaneous documentation may not be prepared by the company that falls into the scope of having the reporting obligations with the competent tax authority.
Contemporaneous documentation shall be retained for ten years from the date of completing the preparation as required by the tax authority.
Garrigues comments
We suggest our clients to review the criteria of each tax obligation mentioned above and assess whether the tax obligation is applicable to the company. In the case that the tax obligation is applicable, please be reminded to complete the forms or prepare the contemporaneous documentation in advance to meet the deadline specified in the regulation.
In the case that our assistance is required in relation to the above matters, please do not hesitate to contact us.
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