China Tax/Business News Flash

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Mar 2015, Issue 11

Further scrutiny on intra-group outbound payments under way

On March 18, 2015, the State Administration of Taxation (SAT) released the Public Notice Regarding Certain Corporate Income Tax Matters on Outbound Payments to Overseas Related Parties ( SAT Public Notice [2015] No.16, hereinafter referred to as the “Public Notice 16”) as well as its official Interpretation (hereinafter referred to as the “SAT’s Interpretation”). Public Notice 16, together with the SAT’s Interpretation, further set out SAT’s position from a transfer pricing perspective in relation to the outbound payments. Compared to Circular 146, Public Notice 16 deals with all types of outbound payments to overseas related parties, rather than focusing on outbound service fee and royalty fee payments. Public Notice 16 reiterates that outbound payments to overseas related parties should follow the arm's length principle, and more importantly, specifies four types of payments that should not be deductible for corporate income tax (CIT) purpose. It is considered that Public Notice 16 is SAT’s another important enforcement in response to the action plan on base erosion and profit shifting (BEPS).

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