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Sep 2014, Issue 19

MNC intra-group outbound charges under spotlight of SAT

Recently, the State Administration of Taxation (SAT) released the Notice of Anti-Avoidance Examination on Significant Outbound Payments (Circular [2014] No. 146, hereinafter referred to as the 'SAT Notice'). In this SAT Notice, the SAT requests the local-level tax bureaus to launch a comprehensive tax examination on significant outbound service fee and royalty fee payments to overseas related parties of a multinational company (MNC), with an aim to strengthen the tax administration on intra-group charges and prevent profit shifting.

The SAT Notice sets forth the key characteristics of suspectable intra-group outbound service and royalty charges that deserve special attention in the tax examination. The SAT urges the local-level tax bureaus to launch a formal Special Tax Adjustment Investigation on the MNC subsidiary in China where the tax avoidance suspicion is obvious.

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