• Service: Tax, Global Transfer Pricing Services, International Tax
  • Type: Regulatory update
  • Date: 8/25/2014

China - Tax authorities focus on related-party service fees, royalties  

August 25:  China’s tax authorities are surveying taxpayers that made service fees and royalty payments to their foreign related parties during years 2004-2013. As a result of these surveys, transfer pricing audits may potentially be triggered with respect to these related-party transactions.

The State Administration of Taxation instructed tax bureaus across China to survey and report back to it in September 2014 regarding companies within their jurisdictions that made service fees or royalty payments to related parties between 2004 and 2013. These years are eligible for potential tax adjustments because the statute of limitations for transfer pricing in China is 10 years.

KPMG observation

Taxpayers having paid or currently paying service fees and/or royalties with respect to transactions with foreign related parties need to consider carefully the economic substance of such royalty payments and the beneficial nature of the service fees.

Immediate action may be needed in order for affected taxpayers to determine that there is adequate evidence to support and justify the service fees and royalty payments made to (being made to) foreign related parties.

Read an August 2014 report [PDF 987 KB] prepared by the KPMG member firm in China: The SAT’s formal assessment on services fees and royalty payments

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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