Strategizing International Tax Best Practices – by Keith Brockman

The State Administration of Taxation (SAT) has focused its risk determinations for outbound payments.  Supplementing this focus, the State Tax Bureau of Zhejiang Province (Zhejiang STB) recently issued its Guideline for Administration of Tax Risks on Outbound Payments to Overseas Related Parties.

PwC’s Business Advisory provides details of this new focus on tax risk:

http://www.pwchk.com/webmedia/doc/635731620115472907_chinatax_news_jul2015_33.pdf

Key observations:

  • Incentivized by BEPS Acton Plans, and local tax practices
  • Six tests for profit shifting/base erosion:
    • Authenticity
    • Necessity
    • Benefit
    • Value creation
    • Duplication
    • Remuneration
  • Required relevant information  during record-filing for outbound payments

The timeliness of providing contemporaneous transfer pricing documentation, subjective tests for assessment of benefit / value for intercompany services, varying interpretations of internal guidance and lengthy appeal processes are becoming more common, evidenced by this recent focus by China and followed in many other jurisdictions.

The additional focus has introduced additional uncertainty, as well as less consistency, in jurisdictions around the world.  However, the concept of simultaneous corresponding adjustments are generally not addressed in such initiatives, thereby increasing the level of double taxation for MNE’s.

A Best Practice approach will require additional resources focused upon such efforts, as the probability of double taxation increases exponentially.

 

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: