tax notes international - Tuck School of Business - Dartmouth College

CHINA (P.R.C.)
On December 16, 2008, the SAT released nine RPT
disclosure forms (Guo Shui Fa [2008] No. 114) to replace
forms required under China’s previous annual
income tax return filing system for foreign investment
enterprises. The new RPT forms ask companies to disclose
whether they have prepared contemporaneous
transfer pricing documentation when filing the annual
CIT return. (For prior coverage, see Doc 2008-26922 or
2008 WTD 247-18.) The RPT forms must be filed together
with the annual EIT return package.
The SAT on January 9 published the Implementation
Regulations for Special Tax Adjustments (Guo
Shui Fa [2009] No. 2, or Circular 2), which define the
scope of China’s transfer pricing rules and set out the
contemporaneous transfer pricing documentation rules
that both foreign and domestic enterprises must follow
under China’s new EIT law. (For prior coverage, see
Tax Notes Int’l, Jan. 19, 2009, p. 205, Doc 2009-521, or
2009 WTD 7-1.)
Circular 2 provides for some exemptions from the
contemporaneous documentation rules. For example,
companies may be exempt if the value of their intercompany
tangible goods transactions is below CNY
200 million (about $30 million) and if the value of
their intercompany nontangible goods transactions is
below CNY 40 million (about $6 million), not counting
sales and purchases that are covered by cost-sharing
agreements or advance pricing agreements.
An exemption is also available if the foreign shareholding
in the enterprise is less than 50 percent and the
enterprise traded only with domestic related parties.
Finally, an exemption is available for transactions covered
by an APA.
Details
Ho outlined the company filing requirements for
calendar year 2008, saying companies must file the
new annual EIT return package and the new RPT
forms by May 31, and prepare the contemporaneous
transfer pricing documentation by December 31, which
is an extended deadline for calendar year 2008. Normally,
the due date for contemporaneous documentation
will be May 31 of the year following the tax year,
he said.
The new EIT return asks for information taxpayers
previously did not have to provide. For example, Ho
said, the new return now has lines for:
• a tax adjustment of assets measured at fair value;
• an analysis of income or loss from long-term investments;
• a tax adjustment of advertising and promotion
expenses;
• a tax adjustment of depreciation or amortization;
and
• a tax incentive statement for both grandfathered
and new tax incentives.
Ho also urged taxpayers to act swiftly to complete
the nine new RPT forms by May 31 for tax year 2008
— even though they only came out in December 2008.
‘‘While it seems like we still have a few more months
to go, given the uncertainty and the difficulties in handling
some of the taxation treatment, there may not be
a lot of time in preparing the returns for filing,’’ Ho
said. He said the new RPT forms are much more complex
than the old filing regime that was in place for
calendar year 2007.
After the webcast, Ho told Tax Analysts that the
new EIT return forms contain many items and adjustments
that will be subject to subsequent regulations
and further SAT guidance. ‘‘As a result, there will be
many cases of uncertain tax treatment, which will
likely increase taxpayer compliance burdens,’’ he said.
The obligation to provide more detailed information
on intercompany transactions and other new filing
rules ‘‘may be too great a responsibility to delegate entirely
to the tax and accounting staff of the Chinese
subsidiaries’’ of U.S. parents, Ho said. ‘‘Therefore, a
much more coordinated effort to work with the local
Chinese entity will likely be necessary to satisfy the
greater Chinese compliance responsibilities.’’
Landau predicted the expanded information available
to Chinese tax examiners could make future tax
examinations ‘‘a very bumpy ride.’’ He said U.S. companies
with Chinese operations may need to undertake
‘‘new information gathering processes and protocols’’
to meet the new compliance requirements.
Finally, the panelists cautioned that companies must
correlate the EIT return package, RPT forms, and any
contemporaneous transfer pricing documentation. Even
though the forms and filings are all separate, taxpayers
must ensure a consistent position for all of them, according
to PwC.
Ecuador
♦ Charles Gnaedinger, Tax Analysts.
E-mail: cgnaedin@tax.org
Congress Approves Tax Package
Ecuador’s recently inaugurated National Congress
has approved a new tax package designed to combat
the effects of the global financial crisis, including
amendments to the income and capital flight taxes and
a new tax on deposits held abroad. The amendments
entered into full force and effect on January 1.
The amendments, published in Official Gazette 497
on December 30, 2008, are in response to a package of
measures prepared by President Rafael Correa Delgado.
Ecuador’s economy is largely dependent on oil
390 • FEBRUARY 2, 2009 TAX NOTES INTERNATIONAL
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