News Flash
China Tax and Business Advisory
Scrutiny on intra-group outbound
payments – Chinese tax
authorities in action from local to
state level
December 2014
Issue 34
In brief
We reported that the State Administration of Taxation (SAT) released Circular [2014] No. 146 (Circular
146) in August requesting local-level tax bureaus to launch a comprehensive tax examination on the
significant service fee and royalty fee payments made by Chinese subsidiaries to their overseas related
parties.1 Following Circular 146, local-level tax bureaus in various regions have proactively carried out
the examinations in their regions and reported their findings to the SAT. Also according to a speech
delivered by a senior SAT official at a recent public event, the SAT will soon release a new circular on its
positions and instructions of actions on outbound payments of intra-group service fee and royalty based
on the examination results submitted by local-level tax bureaus.
We anticipate that the local-level tax bureaus would then target those Chinese subsidiaries of
multinational companies (MNC) whose outbound related party payments of service fee and royalty are
significant and not in compliance with the SAT’s positions, and propose tax (transfer pricing)
adjustments. Hence MNC’s Chinese subsidiaries and their overseas related parties should take
appropriate precautions as soon as possible to prepare for the potential challenges from the Chinese tax
authorities and to optimise their intra-group charge arrangements.
In detail
Examinations conducted
by local-level tax bureaus
for the purpose of Circular
146
Following Circular 146, locallevel tax bureaus in various
regions conducted
examinations of outbound
related party payments by
MNC’s Chinese subsidiaries
with an aim to complete the
examination before the middle
of September 2014 as stated in
Circular 146. Based on the
relevant publicly available
information, we find that the...