New Chinese Regulation on Outbound Payments Affects Swiss Multinationals

The Chinese State Administration of Taxation (SAT) recently issued a 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 Public Notice 16). The SAT office released its interpretation of Public Notice 16 (SAT´s Interpretation) the next day, through its official website.

According to this new regulation, outbound payments, service fees or royalties to overseas related parties will not be deductible for corporate income tax (CIT), if they do not meet a few criteria outlined in Public Notice 16. It also states that the payments should follow the arm’s length principle, and addresses substance and documentation requirements.

We believe that Public Notice 16 reflects SAT´s efforts to protect its tax base and demonstrates China´s support of the overall BEPS initiatives with local implementation of measures imposed on Chinese enterprises. Substance and documentary evidence are likely to be key issues on which there will be vigorous debates on interpretation involving taxpayers and tax administrations.

Our publication “Further scrutiny on intra-group outbound payments under way

Our publication “China tax authorities will review all outbound payments to overseas related parties”

For any further questions please contact your usual PwC contact or me.

Benjamin Koch

Published on March 31, 2015 von Benjamin Koch

Benjamin Koch
Birchstrasse 160
Postfach, 8050 Zürich
+41 58 792 43 34

Benjamin is leading the Transfer Pricing and Value Chain Transformation practice within PwC's Tax & Legal Services in Switzerland. His experience includes advising multinational companies on structuring of global value chains, development of global core documentation, migration of intangible property, establishing global trademark royalty schemes and the development of franchising and service fee concepts.

Benjamin Koch has substantial experience assisting companies in preventing tax audits and managing international tax controversies through the proactive use of Advance Pricing Arrangements (APAs), tax rulings and Mutual Agreement Procedures (MAPs). Furthermore, Benjamin Koch is PwC's Territory Leader for Tax Controversy and Dispute Resolution and represents PwC Switzerland in the technical working groups of the Swiss Corporate Tax Reform III.