国家税务总局关于修订《关联企业间业务往来税务管理规程》的通知 Administration of Tax on Business Transactions Between Affiliated Ent

etween Affiliated Enterprises， and the entrusted authorities shall actively and conscientiously carry out the investigation or obtain the information in accordance with the requirements and contents specified by the entrusting authorities， and shall reply in a timely manner.

　　3. The procedures for conducting investigations or obtaining price information by a tax bureau within its own province， autonomous region， municipality directly under the central government or municipality with independent development plans shall be determined by the tax bureau of such province， autonomous region， municipality directly under the central government or municipality with independent development plans itself.

　　Article 22　Investigation abroad.

　　During the audit and investigation of transfer pricing of an enterprise by a competent tax authority， if it is truly necessary to obtain information and materials such as the relevant comparable price or economic conditions from abroad， the State Administration of Taxation may be requested to implement so through the information exchange procedure as agreed in tax treaties； or investigation and collection of the relevant information and materials on comparable price may be conducted through resident institutions of China abroad upon approval. Where it is necessary to despatch personnel to the relevant country （or special administrative region） to conduct on-site audit， investigation and obtaining of evidence， the matter shall be reported to the State Administration of Taxation level by level upward for approval according to the relevant provisions of tax treaties or arrangements， and provisions on external affairs administration.

　　PART SIX　PRESENTATION OF EVIDENCE BY THE ENTERPRISE AND VERIFICATION BY THE TAX AUTHORITIES OF EVIDENCE PRESENTED

　　Article 23　Adjustments by competent tax authorities in respect of an enterprise's transfer pricing are based mainly on the information filed by the enterprise. Accordingly， the evidence presented by an enterprise shall be conscientiously verified and analyzed， including analysis of the function of the affiliated enterprise， analysis of the factors affecting price and profit， etc.

　　Article 24　In the course of the investigation and auditing of an enterprise's transfer pricing by the competent tax authority， the enterprise must present evidence of the normality and reasonablenes

s of the transfer pricing in business transactions involving affiliated enterprises：

　　1. Sale and purchase of tangible property. The enterprise shall mainly provide the following information on the merchandise （products） that is （are） the subject matter of the inter-affiliate transactions： the fame and popularity of the brand， the function and market position of each affiliated enterprise， the seasonal fluctuations in selling prices， the extent of the influence of intangible assets on the merchandise （products）， the quality grade， the performance， the pricing method， etc.

　　2. The assignment and use of intangible property. The enterprise shall mainly provide the following information： the intangible property involved in the transaction and the conditions for assignment thereof （including the territorial limits， scope of the licence， etc.）， the exclusive possession and the period for which it may be maintained， the value of the services， such as technical support and personnel training provided by the assignor， the cost of maintaining the value of the trademark （including advertising， promotion and quality control costs）， the assignee‘s anticipated profit or cost savings resulting from the use or assignment of the property， the composition and method of payment of the price， etc.

　　3. The provision of services. The enterprise shall mainly provide the following information： whether the acceptance of services rendered by the affiliated enterprise genuinely benefited the enterprise， whether the standard for the service fee paid or received was reasonable， whether the related direct and indirect cost and profit margin were reasonable， etc.

　　4. Financing. The enterprise shall mainly provide information on the usual level of interest rate involved in the financing business and the reasonableness of the substance of the various fees involved in the financing business， etc.

　　Article 25　The investigating and auditing personnel shall conscientiously arrange， consolidate， prepare statistical estimates on， analyze and verify the evidence presented by enterprises. On the basis thereof， the said personnel shall fill out the following relevant tables： Detailed Table of Transactions Between an Enterprise and Its Affiliate， Table for Classification of Transactions Between an Enterprise and Its Affiliate， Consolidated Table of Transactions Between an Enterprise and Its Affiliate， Detailed Table of Transactions Between Non-affiliated Enterprises （Foreign Resale）， Table for Classification of Transactions Between Non-affiliated Enterprises （Foreign Resale）， Consolidated Table of Transactions Between Non-affiliated Enterprises （Foreign Resale）， and the Statistical Table on Verification of the Specific Information Provided by an Enterprise in Connection With Business Transactions With Affiliated Enterprises.

　　Article 26　To verify the evidence presented by an enterprise， the tax authority may carry out investigation and verification through the price inquiry procedure （see Part Five hereof）。 If the evidence presented comes from abroad， the tax authority shall require the enterprise to provide a certificate from a local notary public's office and may additionally request a resident institution of China to assist with its inquiries.

　　PART SEVEN　SELECTION OF THE ADJUSTMENT METHOD

　　Article 27　If the prices or fees for business transactions between an enterprise and its affiliated enterprise are not collected or paid as in business transactions conducted at arm's length， thus reducing the enterprise's amount of taxable revenue or income， the competent tax authority shall adopt an appropriate adjustment method on the basis of the category and nature of the inter-affiliate business transactions and the audit results， having given consideration to the relevant factors.

　　Article 28　Methods of adjustment of transfer pricing in purchase and sale of tangible property.

　　1. Adju

stment according to the prices for the same or similar business activity conducted at arm‘s length （also known as the “comparable uncontrolled price method”）， i.e. the determination of fair transaction price by analyzing and comparing the prices in business transactions between the enterprise and its affiliated enterprise with the prices in business transactions between the enterprise and non-affiliated enterprises.

　　When this method is used， the comparable factors of the selected transactions and the inter-affiliate transactions must be taken into account：

　　a. the comparability of the sale and purchase process， including the time and place of the transaction， the delivery terms， the delivery procedures， the payment conditions， the quantity transacted， and the time and place of after-sale services， etc.；

　　b. the comparability of the sale and purchase stages， including the ex-factory stage， the wholesale stage， the retail stage and the export stage， etc.；

　　c. the comparability of the goods bought and sold， including their name， brand， specifications， model， functions， structure， external appearance and packaging， etc.；

　　d. the comparability of the sale and purchase environment， including the social environment （national customs， consumer preferences， etc.）， political environment （degree of political stability， etc.） and economic environment （finance， tax and foreign exchange policies， etc.）。

　　2. Adjustment according to the profit margin that should be generated from the price for resale to a non-affiliated third party （also known as the resale price method）， i.e. the selling affiliate's normal selling price is the balance of the sales revenue obtained by the buying affiliate when it resells the merchandise （products） purchased from the selling affiliate to a non-affiliated third party， less the reasonable expenses incurred and the profit earned （calculated according to normal profit margins） by the buying affiliate when it resells similar merchandise （products） purchased from a non-affiliated enterprise to a non-affiliated third party.

　　Use of this method shall be limited to simple processing or pure sale and purchase， where the reseller has not processed the merchandise （products） in a way that materially adds value （such as alteration of external appearance， functions or structure， change of trademark， etc.）。　Moreover， the selection and determination of the profit margin to be obtained by the reseller shall be reasonable.

　　3. Adjustment according to cost plus reasonable expenses and profit （also known as the cost-plus method）， i.e. the fair transaction price is the selling affiliate's cost of the merchandise （products） plus normal profit.

　　When this method is used， attention must be paid to ensure that the calculation of costs and expenses conforms to the relevant provisions of Chinese tax law and that the cost-profit ratio applied is selected and determined reasonably.

　　4. Other reasonable methods. If none of the three adjustment methods described above can be applied， adjustment may be carried out by adopting another reasonable substitution method， such as the comparable profits method， the profit allocation method， the net profit method， etc. When using other reasonable methods， the key factor is to pay attention to the comparativeness， reasonableness and the conditions of use of such methods.

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