(Announcement  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  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.