Transfer pricing documentation due by year-end

Transfer pricing documentation, required by the State Administration of Taxation (SAT), is due to be submitted by companies that are part of an international group by the end of December.

The requirement stems from a circular (Guo Shui Han [2009] No. 363) issued by the SAT on 6 July. Circular 363 should be read in conjunction with another SAT document, Guo Shui Fa [2009] No. 2, which was issued on 9 January. According to Cecilia Lee, a partner at PricewaterhouseCoopers in Hong Kong, Circular 363 sets out the SAT’s view that “entities in China established by multinational companies, that have limited functions and risks, should not bear the market risk associated with the financial crisis, and as such should not make losses and should continue to make a return in line with their functional profile”.

Circular 363 goes on to say that any such entities that do incur losses are required to prepare and submit transfer pricing documentation, regardless of the size of any transfer pricing transactions they have entered into. According to PricewaterhouseCoopers, this documentation must be submitted by 31 December.