By Shirley Chu
Editor: Jake Liddle
Most MNCs will charge for services provided to other entities within the same company or business. These are classed as intercompany service fees. Often, while trying to protect its tax base, China’s tax authorities will regularly encounter inconsistencies in transfer pricing for intercompany services, such as lack of access to necessary information due to opaque business structures, unclear rules under Enterprise Income Tax (EIT) laws, and difficulty determining whether selected transfer pricing methods for services comply with the arm’s length principle. Companies found guilty of these inconsistencies can be penalized by China’s tax authorities, making it essential to understand the country’s regulations connected to intercompany services.
China’s cement firms to consolidate by over 50 percent by 2020
60 percent of China’s cement capacity is to be consolidated into 10 of the country’s top production companies by 2020. There are around 3500 cement producers in China, and the country’s Cement Association has petitioned to speed up the consolidation process, which will involve numerous closures of cement plants and mergers. This will require existing cement producers to jointly pool RMB 20 billion into a restructuring fund, with many commentators suggesting that the top production companies should contribute the most. China accounts for around 60 percent of global cement production, and is one of the industries suffering from serious overcapacity along with the steel and coal industries. The industry is required to cut 390 million tons of capacity, and 130,000 jobs over the next five years in order to reach a balance between supply and demand.
By Winnie Jin
China continues to build on what it hopes will be the path to a more efficient, modern agricultural industry. On September 18, the Chinese government announced plans to invest RMB three trillion into modernizing the country’s agriculture by the year 2020. A loan from the state-owned policy lender Agricultural Development Bank of China will be used to develop the industry, protect national food security, and support overseas business, as well as to increase efficiency with modern equipment and improve incomes in rural areas.
By Jake Liddle
On July 5, 2016, the State Council issued a circular to speed up the rate of business registration reform. The decision was made to fully implement the ‘Five-in-One’ business license across China as of October 1, 2016, a departure from the previous ‘Three-in-One’ business license system which was introduced the same time last year. The Five-in-One business license was previously piloted in places such as Shenzhen and Zhejiang Province when the Three-in-One business license was first rolled out. The business registration reform is part of a broader effort to ease market access by simplifying administrative procedures.
By Ines Liu
Hong Kong entered into a Double Taxation Arrangement (DTA) with China in 2006. The treaty acts as a way to avoid double taxation and clamp down on tax evasion, improving ties between both jurisdictions by reinforcing their respective tax laws, encouraging competition, and promoting investment. A fourth protocol was signed on April 1, 2015, amending four key aspects of the DTA. One of those aspects was tax exemption for capital gains derived by foreign investors that sell shares of a China based company, which we explore in detail below.
Consumer goods quality standards upgrade plan
On September 13, 2016, the General Office of the State Council formally published the Upgrade Plan for Standards and Quality of Consumer Goods (2012-2020), which sets a clear goal for improving product quality. It plans that by 2020, the standard supply of consumer goods will satisfy growing consumer demand, and the quality of consumer goods in key areas will reach or be close to international standards. The Plan identifies nine key areas regarding quality upgrade of consumer goods, including home appliances, consumer electronics, home decoration products, clothing products, supplies for infants, the expecting, the elderly, and the disabled, cosmetics and daily chemicals, products for culture, sports, and leisure, traditional culture products, and food and other related products.
By Zolzaya Erdenebileg
China’s direct sales industry has consistently displayed exceptional growth over the last few years. Value growth in 2015 was recorded at 10 percent, partially due to 20 new entrants gaining direct sales licenses in that year, keeping the industry incredibly competitive. If growth of 10 percent is maintained, the industry is expected to see a value compact annual growth rate (CAGR) of six percent. However, sales value shares will be sapped by increasingly powerful internet retail and other types of retail channels, and so direct sales growth may decline.
The latest issue of China Briefing Magazine, titled “Revisiting Transfer Pricing in China: a Year of New Regulations“, is out now and available to subscribers as a complimentary download in the Asia Briefing Publication Store through the month of September.
- Navigating China’s New Transfer Pricing Regulations
- Understanding Transfer Pricing Methods and Compliance in China
- The Complexity of Transfer Pricing for Intercompany Services