Guidance for Contemporaneous Documentation
01 What do contemporaneous documentation cover?
According to “Notice42”, there are three types of contemporaneous documentation, namely, master file, local file and special issue file. Preparation conditions are set for each type of file respectively. Enterprises shall prepare contemporaneous documentation as long as they meet the preparation conditions. It is possible for enterprises to prepare multiple files in the same tax year.
02 Which enterprises need to prepare contemporaneous documentation-master file?
Any enterprise that meets one of the following criteria shall prepare a master file:
(i)The enterprise that has conducted cross-border related party transactions during the tax year concerned, and the MNE group to which the ultimate holding company that consolidates the enterprise belongs, has prepared a master file.
(ii)The annual total amount of the enterprise’s related party transactions exceeds 1 billion RMB.
03 Which enterprises need to prepare contemporaneous documentation-local file?
Any enterprise that meets one of the following criteria during the fiscal year shall prepare a local file:
(i)The annual related party transfer of ownership of tangible assets exceeds 200 million RMB (for toll manufacturing transaction, the amount is calculated using the import/export customs declaration prices).
(ii)The annual related party transfer of financial assets exceeds100 million RMB.
(iii)The annual related party transfer of ownership of intangibles exceeds 100 million RMB.
(iv)The annual total amount of other related party transactions exceeds 40 million RMB.
In addition, according to Article 28 of "the Administrative Matters for Special Tax Adjustment and Mutual Agreement Procedure" (Public Notice of the State Administration of Taxation [2017] 6), enterprises engage in single production such as processing with supplied materials or imported materials for overseas related parties, or engage in the business of distribution or contract R&D business, suffer a loss, regardless of whether it meets the contemporaneous documentation preparation standard in “Notice 42”,shall submit local files for the loss-making year.
04 Which enterprises need to prepare contemporaneous documentation-special issue file?
Special issue files include special issue file on cost sharing agreements and special issue file on thin capitalization.
(i)An enterprise that enters into or implements a cost sharing agreement (hereafter referred to as “CSA”) shall prepare a special issue file for the CSA.
(ii)An enterprise with a related party debt-to-equity ratio exceeding the threshold shall prepare a special issue file on thin capitalization to demonstrate its conformity with the arm’s length principle.
05 Under what circumstances can an enterprise be exempted from preparing contemporaneous documentation?
Enterprises that meet any of the following circumstances may be exempted from preparing all or part of the contemporaneous documentation:
(i)Enterprises with effective advance pricing agreements in place may choose not to prepare local file and special issue file with respect to the related party transactions covered by such advance pricing agreements, and the amount of these related party transactions is excluded from the calculation of the thresholds stipulated in Articles 13 of “Notice 42”.
(ii)Enterprises with only domestic related party transactions may choose not to prepare master file, local file and special issue file.
06 What conditions need to be met to simplify the submission of the master file?
In accordance with the requirements of “the Announcement of the State Administration of Taxation on Clarifying Matters Related to the Provision and Administration of contemporaneous documentation master file” (Public Notice of the State Administration of Taxation [2018] 14, hereinafter referred to as “Notice 14”). Enterprises can simplify and submit the master file as long as they meet the following conditions: First, it complies with the preparation conditions of the master file in “Notice 42”; Second, enterprises within the group are under the jurisdiction of two or more tax authorities; Third, enterprises take the initiative to provide the master file. It should be noted that the "voluntary provision" mentioned in “Notice 14” refers to the situation where the enterprise provides the master file before the implementation of the special tax adjustment by the tax authorities.
07 In what period should the enterprise complete the preparation of the contemporaneous documentation?
A master file shall be completed within 12 months of the fiscal year end of the ultimate holding company of the enterprise group；local file and special issue file shall be completed by 30 June of the year following the year during which the related party transactions occur.
08 When should the enterprise provide the contemporaneous documentation？
Contemporaneous documentation shall be submitted within 30 days after receiving a request from the tax administrations. Enterprises that fail to submit contemporaneous documentation due to an event of force majeure shall submit the contemporaneous documentation within 30 days after the event of force majeure ceases to prevent the submission.
09 What are the regulations for the preservation of contemporaneous documentation?
Contemporaneous documentation shall be kept for 10 years from the completion date of the preparation as required by the tax administrations. In the event of a merger or divestiture, the relevant contemporaneous documentation shall be kept by the surviving enterprise after the merger or divestiture.
10 What are the risks of violating the relevant regulations for the Administration of Contemporaneous Documentation?
For enterprises that submit contemporaneous documentation and other relevant information in accordance with relevant provisions, when additional tax is imposed by the tax administrations during the special tax investigation, an interest can be levied based on the People’s Bank of China central base lending rates for the same period to which the tax payment is related, in accordance with the provisions under Article 122 of the implementation regulations of the Enterprise Income Tax Law.
