Shenzhen Customs and taxation implement coordinated management of transfer pricing of related imported goods, reduce tax compliance costs, and improve tax certainty
For a long time, the different requirements of customs valuation and tax transfer pricing have brought many problems to the tax compliance of enterprises. For example, customs valuation usually requires that the price of related imported goods be higher than the average price of similar goods in the same period, while the principle of arm’s length transfer pricing requires that the price of related imported goods should be lower than the average price of similar goods in the same period. The two results are diametrically opposite. This causes a lot of confusion for companies involved in the related import of goods (such as how to formulate appropriate transfer pricing policies, how to prepare compliant contemporaneous documents, how to explain the reasons for high or low prices to customs/tax authorities, etc. ) and will result in repeated tax payments by the enterprise.
In order to solve this problem, on May 18, Shenzhen Customs and the Shenzhen Municipal Taxation Bureau of the State Administration of Taxation jointly issued the “Notice on Issues Concerning the Implementation of the Coordinated Management of Transfer Pricing of Related Imported Goods” (Shen Tariff [2022] No. 62, hereinafter referred to as the “Notice”). Announcement No. 62), clarified matters related to the coordinated management of transfer pricing of related imported goods. According to Announcement No. 62, the collaborative management of transfer pricing means that Shenzhen Customs and Shenzhen Taxation Bureau jointly evaluate the price of the related imported goods of the enterprise. Customs price advance ruling, tax advance pricing arrangement, and inter-departmental collaborative management, reduce taxpayer compliance costs and improve compliance certainty and management efficiency.
This is the first of its kind in the country, and it should be greatly praised. I hope this Shenzhen model can be promoted across the country as soon as possible! Some netizens commented: The ice that has been repeatedly levied by taxation and customs for many years has begun to melt in Shenzhen!
Notice of Shenzhen Customs, State Administration of Taxation and Shenzhen Taxation Bureau on Issues Concerning the Implementation of the Coordinated Management of Transfer Pricing of Related Imported Goods
Shenzhen Customs [2022] No. 62
In order to implement the “Opinions on Further Deepening the Reform of Tax Collection and Administration” issued by the General Office of the CPC Central Committee and the General Office of the State Council, serve the development of the Guangdong-Hong Kong-Macao Greater Bay Area and the construction of the Shenzhen Pilot Demonstration Zone, and create a good business environment, according to the “Customs Examination and Approval of the People’s Republic of China” Measures for the Dutiable Value of Imported and Exported Goods (Order No. 213 of the General Administration of Customs), Interim Measures for the Administration of Advance Rulings of the Customs of the People’s Republic of China (Order No. 236 of the General Administration of Customs), and the Enterprise Income Tax Law of the People’s Republic of China, the State Administration of Taxation Announcement on Matters Concerning Improving the Administration of Advance Pricing Arrangements (Announcement No. 64 [2016] of the State Administration of Taxation, revised in accordance with Announcement No. 31 [2018] of the State Administration of Taxation, hereinafter referred to as “Announcement No. 64 of the State Administration of Taxation”), “Announcement No. 64 of the State Administration of Taxation” Announcement on the Administrative Measures for Special Tax Investigation Adjustment and Mutual Agreement Procedures (Announcement No. 6 [2017] of the State Administration of Taxation) and other relevant regulations, Shenzhen Customs of the People’s Republic of China (hereinafter referred to as “Shenzhen Customs”), Shenzhen Taxation Bureau of the State Administration of Taxation ( Hereinafter referred to as “Shenzhen Taxation Bureau”) decided to implement coordinated management of the transfer pricing of related imported goods. The relevant matters are hereby announced as follows:
1. Content and application of collaborative management
The term “coordinated management of transfer pricing of related imported goods” (hereinafter referred to as “coordinated management of transfer pricing”) as mentioned in this circular refers to the joint assessment by Shenzhen Customs and Shenzhen Taxation Bureau of the price of related imported goods of the enterprise, and the joint signing with the enterprise after negotiation and agreement. “Memorandum of Collaborative Management of Transfer Pricing of Related Imported Goods” (hereinafter referred to as “Memorandum of Collaborative Management”, see Annex 1 for the format), and make advance rulings on customs prices and tax advance pricing arrangements, and use cross-departmental collaborative management to reduce taxpayer costs. Compliance costs, improve compliance certainty and management effectiveness.
Enterprises that comply with Article 4 of Order No. 236 of the General Administration of Customs and Article 4 of Announcement No. 64 of the State Administration of Taxation can apply for the coordinated management of transfer pricing.
2. Application and acceptance of collaborative management
If an enterprise applies for the collaborative management of transfer pricing, it shall submit the “Application Form for the Collaborative Management of Transfer Pricing of Related Imported Goods” (hereinafter referred to as the “Application Form for Collaborative Management”, see Annex 2 for the format) in writing to Shenzhen Customs and the Shenzhen Taxation Bureau at the same time. According to the relevant provisions of the Department’s Order No. 236 and the Tax No. 64 Announcement, submit the “Customs Advance Ruling Application (Price)” and the “Tax Advance Pricing Arrangement Preliminary Meeting Application” and related materials. The acceptance department of Shenzhen Customs is the comprehensive business section of the subordinate customs (customs where the enterprise is located), and the acceptance department of Shenzhen Taxation Bureau is the comprehensive business section of the Fourth Taxation Branch.
After receiving the application from the enterprise, Shenzhen Customs or Shenzhen Taxation Bureau shall jointly determine whether the enterprise meets the acceptance conditions within 10 days from the date of application and fill in the acceptance opinion in the “Application Form for Collaborative Management”, which shall be delivered to the enterprise by the acceptance department.
If the evaluation finds that the information provided by the enterprise is incomplete, the acceptance department shall notify the enterprise at one time to make corrections within 5 days. The period of supplementing and correcting application materials shall not be counted in the acceptance period.
The customs price advance ruling and tax advance pricing arrangement shall be implemented in accordance with their respective existing systems.
3. Evaluation and negotiation of collaborative management
After the Shenzhen Customs and the Shenzhen Taxation Bureau accept the application of the enterprise, they shall start a joint assessment within 15 days from the date of acceptance and negotiate with the enterprise on the related import price.
During the joint assessment and negotiation, Shenzhen Customs and Shenzhen Taxation Bureau may require the enterprise to submit additional relevant materials, and the enterprise shall submit it within the prescribed time limit. Both parties may individually or jointly interview companies or conduct on-site inspections of companies as needed.
4. Signing of the Memorandum of Understanding on Collaborative Management
If Shenzhen Customs and Shenzhen Taxation Bureau reach a consensus through consultation, they shall sign a “Memorandum of Collaborative Management” with the enterprise, which shall be signed by the legal representatives of the three parties or their authorized representatives. At the same time, Shenzhen Customs made an advance ruling on price, and Shenzhen Taxation Bureau reached an advance pricing arrangement with the enterprise.
If Shenzhen Customs and Shenzhen Taxation Bureau cannot reach an agreement through consultation, they shall terminate the collaborative management procedure and notify the enterprise in writing by the acceptance department.
5. Execution of the collaborative management memorandum
Enterprises shall submit paper and electronic annual reports on the implementation of transfer pricing coordination management to Shenzhen Customs and Shenzhen Taxation Bureau within 6 months after the end of each year during which the “Coordinated Management Memorandum” applies. The annual report shall state the operation of the enterprise and the implementation of collaborative management during the reporting period. If the enterprise proposes to revise or terminate the collaborative management memorandum, it shall make an explanation together.
Shenzhen Customs and Shenzhen Taxation Bureau shall, in accordance with the relevant provisions of the General Administration of Customs Order No. 213 and Tax No. 64 Announcement, respectively, evaluate and analyze the annual implementation situation submitted by the enterprise, and do a good job in follow-up monitoring and disposal.
During the application period of the memorandum, if the enterprise adjusts the price of goods in accordance with the memorandum, Shenzhen Customs and Shenzhen Taxation Bureau shall perform corresponding procedures in accordance with their respective relevant regulations. If the enterprise fails to comply with the implementation, or there are substantial changes that make the collaborative management memorandum no longer applicable, or the enterprise proposes to revise or terminate the collaborative management memorandum, Shenzhen Customs and Shenzhen Taxation Bureau shall negotiate to revise or terminate the collaborative management memorandum in accordance with relevant regulations. If an enterprise is found to be in violation of laws and regulations, it will be dealt with in accordance with the law.
6. Invalidation and renewal of the collaborative management memorandum
The “Cooperative Management Memorandum” will automatically become invalid after the execution period expires. Enterprises can apply for renewal to Shenzhen Customs and Shenzhen Taxation Bureau within 90 days before the expiry date of the memorandum.
This notice will be implemented from the date of publication.
Attachment 1: Memorandum on Collaborative Management of Transfer Pricing of Related Imported Goods (Template).docx
Attachment 2: Application Form for Collaborative Management of Transfer Pricing of Related Imported Goods (Template).docx
announce.
Shenzhen Customs State Administration of Taxation Shenzhen Taxation Bureau
May 18, 2022
Annex 1. Memorandum of Understanding on Coordinated Management of Transfer Pricing of Related Imported Goods (Template)
Shenzhen Customs, People’s Republic of China
Shenzhen Municipal Taxation Bureau, State Administration of Taxation
XX company
Memorandum of Understanding on Collaborative Management of Transfer Pricing of Related Imported Goods
According to the “Measures of the Customs of the People’s Republic of China on Examining the Dutiable Value of Imported and Exported Goods” (Order No. 213 of the General Administration of Customs), “Interim Measures for the Administration of Advance Rulings of the Customs of the People’s Republic of China” (Order No. 236 of the General Administration of Customs), and the “State Administration of Taxation on Improving Appointments” Announcement on Matters Concerning the Management of Pricing Arrangements (Announcement No. 64 [2016] of the State Administration of Taxation), after the formal application of XX Company and the joint assessment by Shenzhen Customs of the People’s Republic of China and the Shenzhen Municipal Taxation Bureau of the State Administration of Taxation, the three parties transferred the related imported goods of XX Company . The following collaborative management memorandum has been reached on pricing-related matters:
Article 1 General Definitions
In this memo, unless the context requires otherwise:
1. “Competent Customs” refers to Shenzhen Customs of the People’s Republic of China.
2. “Competent tax authority” refers to the Shenzhen Municipal Taxation Bureau of the State Administration of Taxation.
3. “Applicant” refers to XX Company , applicant identification number (unified social credit code): 9144XXXXXXXXXXXXXX , address: Shenzhen XXXXXXXXXXXXXX .
4. “Coordinated price” refers to the price (cost) of imported goods calculated based on the pricing principles and calculation methods reached by the competent customs, the competent taxation authority, and the applicant on the transfer pricing of related imported goods.
Article 2 Scope of application
This memorandum applies to the determination of the import price (cost) of goods purchased by XX Company from related parties ABC and other companies.
Article 3 Period of application
The coordinated price of related imported goods involved in this memorandum applies to three calendar years from 20XX to 20XX .
Article 4 Key Assumptions
The pricing principles and calculation methods used in this memorandum are based on the following assumptions:
1. The applicant’s business structure or the content, scope and scale of its business activities have not undergone major changes.
2. The applicant’s business model, economic conditions, business activities, functions performed, risks assumed, assets used, and the main structure of imported goods, trade patterns and descriptions in this memorandum remain substantially unchanged.
3. The applicant’s financial accounting methods and classification have not undergone major changes.
4. Changes in accounting, taxation, customs, foreign exchange and other policies and regulations in Mainland China and changes in the economic environment have no significant impact on the implementation of this memorandum.
5. During the applicable period, there is no major service quality problem that the applicant needs to undertake.
6. During the application period, there is no major legal dispute or lawsuit that the applicant needs to bear.
7. During the applicable period, there was no force majeure event affecting the applicant’s business operations.
During the implementation period, if the above assumptions change, the applicant shall report to the competent customs and the competent tax authority in writing within 30 days from the date of the change. Shenzhen Customs and Shenzhen Taxation Bureau negotiate to amend or terminate this memorandum in accordance with relevant regulations.
Article 5 Transfer pricing method and customs valuation method
1. Tax transfer pricing method:
Customs valuation method:
2. Financial indicators
3. Fair trade value range
Article 6 Adjustment of the applicant’s goods price
1. During the application period of this memorandum, the actual financial indicators of the applicant in any year shall be implemented in accordance with the median value of the fair transaction value range determined in Article 5, paragraph 3. If it is lower or higher than the median value, the applicant needs to adjust the price according to the median value of financial indicators.
2. After the applicant adjusts the price of the goods, it shall promptly notify the competent customs and the competent taxation bureau. The competent customs office and the competent taxation bureau shall perform the corresponding procedures in accordance with their respective relevant regulations.
Article 7 Annual Report
1. During the application period of this memorandum, the applicant shall submit an annual report on the implementation in accordance with relevant laws and regulations within six months after the end of each year. The annual report shall state the operation of the enterprise and the implementation of collaborative management during the reporting period. If it is proposed to revise or terminate the collaborative management memorandum, an explanation shall be given together.
2. The competent customs and tax authorities shall, in accordance with the relevant laws and regulations, examine the annual report submitted by the applicant, and make corresponding dispositions as the case may be.
Article 8 Validity of the memorandum
1. During the application period of this memorandum, all three parties shall abide by it.
2. If the applicant fails to comply with the implementation, the competent customs and the competent tax authority shall negotiate to revise or terminate the memorandum in accordance with relevant regulations. If the memorandum is terminated, the competent customs and tax authorities have the right to determine the customs value of the related imported goods separately.
3. This memorandum does not serve as a basis for renewal. The applicant shall file a separate renewal application in accordance with the relevant regulations.
Article 9 Resolution of Disputes
If the three parties disagree on the implementation and interpretation of this memorandum, they should be resolved through consultation first. If it cannot be resolved through negotiation, this memorandum may be revised or terminated.
Article 10 Confidentiality obligations and responsibilities
The information obtained by the competent customs and tax authorities and the applicant during the negotiation, signing and implementation of this memorandum shall be kept confidential by the three parties.
Article 11 Entry into force, amendment, and termination
1. This memorandum will come into effect after it is signed and sealed by the legal representatives of the three parties or their authorized representatives.
2. If there is a substantial change in the applicant and the memorandum cannot continue to be applied, or if the enterprise proposes to revise or terminate the memorandum of coordinated management, the competent customs and the competent tax authority shall negotiate to revise or terminate the memorandum in accordance with relevant regulations.
Article 12 Supplementary Provisions
1. This memorandum should be in Chinese, in triplicate, one for each of the competent customs, the competent tax authority and the applicant.
2. The texts of the customs price advance ruling and tax advance pricing arrangement made simultaneously with this memorandum shall be attached to this memorandum.
Attachment: 1. APA text;
2. Customs price advance ruling text
Parties to the Memorandum:
Shenzhen Customs, People’s Republic of China
Authorized Representative:
date:
Shenzhen Municipal Taxation Bureau, State Administration of Taxation
Authorized Representative:
date:
XX company
Authorized Representative:
date: