On 20 January 2014, China Taxation News reported that the Xiamen State Tax Bureau (XSTB) made China’s single-largest transfer pricing (TP) adjustment to cross-border service fees and assessed that more than RMB800 million (US$129.6 million) in taxes and interest by a Fortune 500 multinational’s two Chinese subsidiaries.
According to the report, the two Chinese subsidiaries, which were incorporated in 1998 and 2004 in Xiamen, had gradually been increasing sales revenue but significantly decreasing profits since 2008. Their financial reports showed that the decrease in profits was mainly due to RMB3.8 billion in cross-border service fees paid to a related party in Singapore between 2008 and 2010. The XSTB started a transfer pricing investigation in May 2010 and reached a settlement agreement with the two Chinese subsidiaries for the transfer pricing adjustment in late 2013.
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Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mail at: Zhang Danian (Shanghai) danian.zhang@bakermckenzie.com
