DOCUMENTATION REQUIREMENTS OF NEW CHINESE TRANSFER … DeSouza_중국 이전... · Companies...
Transcript of DOCUMENTATION REQUIREMENTS OF NEW CHINESE TRANSFER … DeSouza_중국 이전... · Companies...
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Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in
professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference
to an “office” means an office of any such law firm.
People’s Republic of China
DOCUMENTATION REQUIREMENTS OF NEW CHINESE
TRANSFER PRICING RULES
Chinese TP Seminar 2008 - Seoul
November 26, 2008
Glenn DeSouzaManaging Director TPMC
Baker & McKenzie Shanghai
86-21-6105-5966
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The 10 Rules to Minimize China TP Documentation Life-
Cycle Costs
1. Start with portfolio risk analysis to identify those entities which need defense-quality documentation
2. Use Excel-based approach as opposed to Word. Use of Excel-tables can minimize update and translation cost.
3. Integrate information from disclosure forms into TP report
4. Use an Excel template library for functional checklists, financials, business profiles and so forth
5. Respect formats prescribed by SAT – avoid use of global template
6. Use large sets of Chinese comparable companies so as to ensure that comp set can last many years
7. Use simultaneous-language translation algorithms
8. Build up your in-house tax team
9. Invest in training your team to take ownership of updating
10.Utilize software and technology but ensure that it as simple and transparent as possible
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Compliance Goals
Perfection is achieved not when there is nothing left to add
but when there is nothing left to take away
Driving Down Documentation Costs
( Hours )
50 60 60
100
2510
2008 2009 2010
Inhouse Consultant
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重庆
SHANGHAI
TIANJINGGUANGZHOU
SHENZHENSUZHOU
WUXI
CHANGHSHA
NANJING
BEIJING
-3
0
3
6
9
12
Size
Pro
fit
%
Risk assessment factors
• Profit versus benchmark
• Use of tax haven structures
• Level of related party transactions
First Step:
RBASE – risk assessment of China portfolio
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Recommended – large set of comparables
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Description and History
The subject was set up by Wuxi Little Swan Electric Appliances Industry Co. in Nov. 1993
with 62.314 million shares converted from net assets, 37.5 corporate shares raised and
2.5 million staff shares. After issuing foreign fund shares and public shares in Jul. 1996
and Mar. 1996, the A shares totalled 304.2532 million when the subject got listed. The
staff shares of 9 million were listed for trade half a year later than that of public shares. Its
profit allocation scheme of 1996 has been passed by directorate.
Summary Business Description
The subject mainly engages itself in production, sale of household electric appliances and
spare parts and providing technical services.
Recommended – In-depth comparables analysis Limits of BvD description - Example: Wuxi Little Swan
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Wuxi Little Swan (Wu Xi Xiao Tian E) 无锡小天鹅
Currently, 55% of Wuxi Little Swan’s shares are free float and 45% are non-tradable. The main
shareholders are Jiangsu Little Swan Group Co., (a state owned enterprise) with 27.8% and
Greater China Development Co., Ltd with 7.1% ownership. Wuxi Little Swan has 12
subsidiaries all located in China and mostly engaged in manufacturing.
Wuxi Little Swan leads the washing machine market in China. The prices of Wuxi Little Swan
washing machines and refrigerators range from less than US$ 100 to US$ 200. This former
state owned enterprise generated approximately 67% of revenues from washing machines and
11% from refrigerators.
Companies directly competing with Wuxi Little Swan in China are Haier, GE, Panasonic,
Electrolux and Bosch. Exports accounted for 23% of Wuxi Little Swan’s revenue in 2005.
In 2005, Wuxi Little Swan cooperated with GE to enter America’s high-end washing machine
market for the first time and received U.S. governmental subsidises for each machine sold. It
also started manufacturing on behalf of Hitachi and entered Japan during the same year.
It is outperformed in China by foreign manufacturers and Haier and it has not paid any
dividends since 2001. Its market capitalization declined from US$ 530 million in 2001 to
US$ 220 million in 2006.
TPMC description
- Example: Wuxi Little Swan
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SAT Documentation Format (Per Draft of April 2008)
I. Organizational structure - for example
(1) global organizational structure of the group of companies to which the enterprise belongs;
II. Detailed analysis of business operations - for example
(1) overview of the business of the enterprise, and the position of the enterprise within the supply chain and;
(2) the relevant competitive environment;
(3) filling out the "Table of Entity's Functional Analysis“
III. Details of related party transactions - for example
(1) description of the type of the related party transactions, and the participants, timing, amounts, settlement currencies, transaction
terms, etc.;
(2) filling out the "Financial Analysis on Related Party Transactions Form“ showing segmented financial.
IV. Comparability analysis - for example
(1) criteria applied in the selection of comparables and the reason for such criteria;
(2) adjustments made to comparables' data and the reason behind such adjustments
V. Selection and application of transfer pricing method
(1) transfer pricing method applied and the reason for applying such method;
(2) determination of arm's length price or profit by utilizing a transfer pricing method and comparable data.
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1. Relationship with the Related Parties
2. Summary of Related Party Transactions
3. Purchases and Sales
4. Services
5. Financing
6. Transfer of Assets
7. Thin Capitalization
8. Payment to Overseas Related Parties
* Per Article 9 of the Draft issued in April 2008
Filing Attachments (With Tax Return)*
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Example
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SAT Functional Checklist
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Company Profile