There are four types of transfer pricing obligations in China, which might require action by enterprises in 2021. The transfer pricing obligations include the preparation of master file, local file, special issue file and country by country report (CBCR) form.
a) Obligations to prepare the master file
Chinese enterprises with overseas related party transactions are required to prepare the master file, if they have satisfied one of the following conditions:
The company group of the ultimate holding company has prepared master file; or
Total annual amount of related party transactions exceeds RMB 1 billion.
Master file should be completed within 12 months since the end of the accounting period of the ultimate holding company.
b) Obligations to prepare the local file
Chinese enterprises with related party transactions are required to prepare the local file if they have exceeded one of the following thresholds:
Annual amount of tangible assets ownership transfer exceeds RMB 200 million;
Annual amount of financial assets transfer exceeds RMB 100 million;
Annual amount of intangible assets ownership transfer exceeds RMB 100 million; or
Annual amount of other types of related party transactions exceeds RMB 40 million.
Local file should be completed by June 30 in the following year of the related party transactions.
c) Obligations to prepare the special issue file
The special issue file shall be prepared by:
taxpayers engaging in Cost Sharing Agreement; or
taxpayers falling under thin capitalization requirement.
Special issue file should be completed by June 30 in the following year of the related party transactions.
d) Obligations to prepare the CBCR forms
The CBCR forms are required for the Chinese resident enterprise if one of the conditions is met:
It is the ultimate holding company of the company group with consolidated revenues of more than RMB 5.5 billion in the previous accounting period; or
It is nominated as the CBCR reporting entity by the company group.
A subsidiary of a company group in China may also be required to submit CBCR forms in the special tax adjustment, provided that its ultimate holding company should prepare the CBCR forms according to the regulation of the jurisdiction it resides and one of the following conditions is met:
The multinational group has not provided the CBCR forms to the tax authority of any jurisdiction;
Although the company group has submitted the CBCR forms, the jurisdiction collecting the report has not had the exchange information mechanism with China;
Although the multinational group has submitted the CBCR forms and the jurisdiction collecting the CBCR forms has had the exchange information mechanism with China, the CBCR has not been successfully exchanged to China.
The CBCR forms shall be submitted to the competent tax authority by May 31 following the year during which the related party transactions occur.
In this regard, we would like to draw the attention of Chinese enterprises who have the transfer pricing filing obligation. We remain at your full disposal if you have any question on the transfer pricing filing for 2020.