China Taxation News reported on 31 May 2016 that the Changzhou Local Tax Bureau made a transfer pricing adjustment on a financing transaction between two domestic affiliates and collected RMB10.44 million (US$1.57 million) in enterprise income tax (EIT) and interest.
THE INVESTIGATION
A tax official learned from bank information that a real property development enterprise established in Changzhou (the subsidiary), which was a wholly-owned subsidiary of another Changzhou enterprise (the parent), borrowed RMB720 million as long-term debt in 2013, resulting in a total outstanding debt of RMB1.82 billion. The tax official doubted the commercial rationale behind the subsidiary taking on such a large debt load because the subsidiary had not invested in any new projects since 2013.
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Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mailing Danian Zhang (Shanghai) at danian.zhang@bakermckenzie.com
