(Announcement [2014] No.54) (国家税务总局关于特别纳税调整监控管理有关问题的公告)

On August 29, 2014, SAT released Announcement [2014]  No.54 (“Announcement 54”), specifying issues related to monitoring and administration of special tax adjustments.

Announcement 54’s main highlights are as follows:

  • Where tax authorities identify special tax adjustment risks of taxpayers through monitoring and  administration methods (such as, among others,reviewing related-party transaction declarations and the contemporaneous documentation), they must  alert taxpayers  of the risks, by issuing a notice and requesting taxpayers to provide contemporaneous documentation or other related documents within 20 days  of the request. Taxpayers  mustexamine and analyze the reasonableness of the transfer pricing principles and methodologies  they have  applied to their related-party transactions, making self-adjustments and  paying any resulting  taxes accordingly.  Iftaxpayers  ask the tax authorities to confirm their transfer pricing principles and methodologies, the tax authorities  must initiate formal special tax inspection and adjustment procedures to  establish reasonable adjustment methodologies and conduct the appropriate tax adjustments. 
  • Where taxpayers make self-adjustments and pay any resulting taxes during the monitoring and administration stage of special tax adjustments,  the tax authorities are still entitled to conduct special tax inspections and adjustments under relevant regulations. 
  • Where taxpayers provide contemporaneous documentation and other relevant documents during the monitoring and administration stage of special tax adjustments at the tax authorities’ request, the interest levied on the make-up taxes  must  be calculated by applying  the benchmark interest rate  on an RMB loan  published by the People’s Bank of China  for the same period as the make-up taxes. The 5% mark-up on the benchmark interest rate will not be imposed in this case.

Multinational companies with related-party transactions should be familiar with SAT’s new monitoring and administration measure for special tax adjustments. These companies should examine and review their own transfer pricing policies to avoid or mitigate transfer pricing risks.

Date of issue: August 29, 2014. Date of effectiveness: August 29, 2014.