Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's-Length Transfer Pricing
Profit-seeking enterprises undertaking Controlled Transactions shall determine the Arm’s-length result of the Controlled Transactions and report the taxable income in accordance with the criteria set forth in the ITA and these Assessment Regulations. Where the profit-seeking enterprises failed to comply with the Assessment Regulations thereby resulting in a reduction of tax payable, and the tax collection authorities have made adjustments and assessed the taxable income of related taxpayers in accordance with the ITA and these Assessment Regulations, Article 110 of ITA shall apply to the following specific tax omission or under-reporting situations:
1. The reported price of Controlled Transaction is two times or more than the Arm’s Length price assessed by the tax collection authorities; or lower than 50% of the Arm’s-length price.
2. The increase in taxable income of the Controlled Transactions adjusted and assessed by the tax collection authorities is more than 10% of the annual taxable income of the enterprise; and more than 3% of the annual net operating revenue.
3. Profit-seeking Enterprise that cannot produce transfer pricing report as required under Subparagraph 4, Paragraph 1 of Article 22 thereof, and no other documents evidencing the transactions is Arm’s-length result.
4. Other de facto tax omission or under-reporting situations discovered by the tax collection authorities where the amount of evasion is significant.
The preceding paragraph for the imposition of penalties shall apply to the profit-seeking enterprises income tax returns as at fiscal year 2005.