China transfer pricing: related-party returns, documentation and adjustments

Who this applies to

Mainland China enterprises with related-party transactions. Resident enterprises taxed on actual accounts and non-resident establishments assessed on actual profits attach the annual related-party transaction report to their annual enterprise-income-tax return. Documentation thresholds do not create a general reporting exemption. Hong Kong, Macao and Taiwan transactions follow the corresponding rules. The related-party return, contemporaneous documentation and country-by-country report are separate tests (STA Announcement 2016 No.42, §§1,5,10,26).

A related-party relationship can arise through 25% or more direct/indirect ownership or common ownership, financing/guarantees, dependency on intellectual property or business control, appointment of half or more of directors/senior managers under the full appointment and concurrent-role alternatives, specified family relationships or other common interests. Apply the full alternative tests, not only shareholding. For the ownership chain, the intermediate 25% test changes how the indirect percentage is counted. Combine the specified family members' interests. For the financing test, apply the stated existing equity/common-owner condition and the 50% loan-to-paid-in-capital or 10% guarantee tests, with the independent-financial-institution exception. Except for that financing test, a relationship changing during the year is recognised for the actual period. State ownership/appointment alone does not establish the listed relationships (§§2–3).

Rates, bands and thresholds

All amounts are CNY. Where a test says “exceeds”, it means strictly greater than. This does not change the appointment test's “half or more” or the ordinary APA test's “at least 40 million”, which include equality. These are filing/documentation tests, not safe-harbour margins.

Test	Threshold / rule	Official provision
Ownership limb	At least 25%, subject to full indirect/family rules	STA Announcement 2016 No.42 §2
Master file, transaction-size limb	Annual total related-party transactions exceed 1 billion	STA Announcement 2016 No.42 §11(2)
Master file, alternative limb	Cross-border related transactions and ultimate-parent group has prepared a master file; no separate amount threshold in this limb	STA Announcement 2016 No.42 §11(1)
Local file: tangible ownership transfers	Exceed 200 million; toll processing uses annual import/export customs prices	STA Announcement 2016 No.42 §13(1)
Local file: financial-asset transfers	Exceed 100 million	STA Announcement 2016 No.42 §13(2)
Local file: intangible ownership transfers	Exceed 100 million	STA Announcement 2016 No.42 §13(3)
Local file: other related transactions in aggregate	Exceed 40 million	STA Announcement 2016 No.42 §13(4)
CbCR: Chinese-resident ultimate parent	Prior accounting-year consolidated revenue exceeds 5.5 billion	STA Announcement 2016 No.42 §5(1)
CbCR: designated resident reporting enterprise	Group designation is a separate trigger	STA Announcement 2016 No.42 §5(2)
Special files	Cost-sharing agreements; thin-capitalisation explanation where the ratio exceeds the prescribed standard	STA Announcement 2016 No.42 §15
Standard EIT illustration	25%; an entity-specific preferential rate needs its own eligibility check	Enterprise Income Tax Law art. 4
Ordinary APA coverage	3–5 tax years from the specified acceptance-notice year; ordinary historical related transactions of at least 40 million in each of the preceding 3 years	STA Announcement 2016 No.64 §§3–4

An APA exempts its covered transactions from local/special files and excludes them from the local-file threshold amounts; it is not a general master-file or reporting exemption. An enterprise with only domestic related transactions can omit all three contemporaneous files. Separately, a simple manufacturer, distributor or contract-R&D enterprise serving foreign related parties that incurs a loss must prepare the local file for that loss year regardless of the ordinary thresholds (STA Announcement 2016 No.42 §18; STA Announcement 2017 No.6 art. 28).

The base

Identify transactions in tangible assets, financial assets, intangibles, financing and services. Reconcile contracts, ledgers and the annual related-party report. Separate transactions by their true economic characteristics; financing is not automatically a financial-asset transfer (STA Announcement 2016 No.42 §4).

Comparability first. Analyse transaction characteristics; functions, assets and risks; actual contractual terms and capacity to perform them; economic circumstances including location savings/market premium; and business strategy. Choose a justified method and make supported comparability adjustments (STA Announcement 2017 No.6 arts. 15–16,23–27).

Method	Computation / use	Official provision
Comparable uncontrolled price	Compare a sufficiently comparable uncontrolled price; can apply to all transaction types	STA Announcement 2017 No.6 art. 17
Resale price	Independent resale price×(1−comparable gross margin); ordinarily simple resale without substantive value-added processing	STA Announcement 2017 No.6 art. 18
Cost plus	Reasonable related-transaction cost×(1+comparable gross cost mark-up)	STA Announcement 2017 No.6 art. 19
Transactional net margin	A suitable comparable net-profit indicator; distinguish EBIT/sales, EBIT/full cost, return on assets and Berry ratio	STA Announcement 2017 No.6 art. 20
Profit split	Allocate combined profit according to contributions; residual split first rewards routine functions	STA Announcement 2017 No.6 art. 21
Other reasonable method	Includes specified asset valuation methods where justified	STA Announcement 2017 No.6 art. 22

Select a relatively simple party as tested party after functional/risk analysis; public information is preferred, but the authority can also use non-public information. Test each year. Where the authority uses an interquartile analysis and the actual profit is below the comparable median, adjustment is in principle not below the median; do not promise that merely reaching the lower quartile suffices (arts. 23–25).

For intangibles, assess development, enhancement, maintenance, protection, application/promotion and value contribution. Legal ownership alone is insufficient to earn the return; a mere funder without relevant functions/risk receives a reasonable funding return. Update royalties for the stated changes; payments to a non-contributing owner or for an intangible bringing no economic benefit can be fully adjusted (arts. 30–32).

Service benefit test. Show a direct/indirect economic benefit that an independent party would pay for or perform itself. Exclude duplicate services, shareholder activities, benefits merely from group membership, amounts compensated in another transaction, irrelevant services and other non-beneficial activities. Attribute reasonable costs per beneficiary/project where possible; otherwise use a justified allocation key matching benefits and exclude non-beneficial costs from the pool. Payments to a foreign related party without functions, risk or substantial activity can be fully adjusted. No fixed 5% services mark-up is established by the cited rules; an example's assumed benchmark is not a safe harbour (arts. 33–37).

The master file describes the group, business, intangibles, financing and financial/tax position. The local file addresses the enterprise, relationships, transactions including the value chain/location factors, outbound investments, equity transfers, services, comparables and the selected method. Cost-sharing and thin-capitalisation special files have their own content; retain the underlying support rather than substituting a one-page policy (STA Announcement 2016 No.42 §§12,14,16–17).

Deadlines and filing

Requirement	Deadline / form	Official provision
Annual related-party return and applicable resident CbCR	With annual EIT return; ordinary annual EIT settlement within 5 months after year end	STA Announcement 2016 No.42 §§1,5; Enterprise Income Tax Law art. 54
Master file preparation	Within 12 months after ultimate-parent group's accounting-year end	STA Announcement 2016 No.42 §19
Local and special files	Before 30 June of the year following the transaction year	STA Announcement 2016 No.42 §19
Supply documentation on request	Within 30 days of the request	STA Announcement 2016 No.42 §19
Force majeure preventing timely supply	Within 30 days after force majeure ceases	STA Announcement 2016 No.42 §20
Retention	10 years from the required completion date	STA Announcement 2016 No.42 §24

Thus a calendar 2026 local/special file is prepared before 30 June 2027; a calendar 2026 ultimate-parent master file is due within 12 months of 31 December 2026. These are distinct from annual-return filing. Documentation must be in Chinese, identify sources, carry the enterprise seal and signature/seal of its legal or authorised representative. After a merger/split, the successor retains it (§§21–23). Use the current electronic-tax-bureau form/version; no future 2027 screen/box mapping is asserted here.

Penalties and interest

The authority can adjust non-arm's-length related transactions and require information from the enterprise, its related parties and other relevant enterprises; missing, false or incomplete information can lead to a deemed assessment (Enterprise Income Tax Law arts. 41,43–44). Self-correction does not prevent investigation (STA Announcement 2017 No.6 art. 3).

Special-adjustment interest is not a single current lending rate. Under STA Announcement 2017 No.6 art. 44, it runs from 1 June following the tax year to payment, using the tax year's 31 December PBOC comparable-term RMB benchmark plus 5 percentage points, converted on a 365-day year. The stated documentation/cooperation conditions can allow benchmark-only interest; a taxpayer actually above the preparation threshold that fails to supply the required file does not earn that reduction. A voluntary correction with the specified proactive documentation follows art. 45's benchmark rule. Use the actual historical benchmark and dates; no 2026 numerical benchmark is invented. Following expiry of the assessed payment deadline, the provision instead applies statutory late-payment surcharge without double-counting that period's special interest. Special interest is not deductible (EIT Implementation Regulations art. 121).

An objection to the preliminary adjustment is submitted in writing within 7 days of receipt. Administrative-review access follows the payment/security condition in the relevant procedure (STA Announcement 2017 No.6 arts. 40–41). Separate sanctions for reporting failures, concealment or obstruction require their own facts and current collection-law provisions; do not infer a universal fixed TP fine from the documentation thresholds.

Cross-border points

The authority can request CbCR during an investigation where the foreign group is required to prepare it and has not supplied it anywhere, no exchange mechanism exists, or exchange has failed. The special national-security exemption concerns the specified Chinese-parent group information, not all CbCR filers (STA Announcement 2016 No.42 §§6–8).

Same-actual-tax-burden domestic transactions are in principle not specially adjusted only if they do not directly or indirectly reduce China's overall tax revenue. This is distinct from the domestic-only file exemption (STA Announcement 2017 No.6 art. 38).

APAs can be unilateral, bilateral or multilateral. The ordinary procedure has six stages; the statutory 3–5 year coverage is not an application-processing estimate. Bilateral/multilateral negotiation and corresponding adjustments use the applicable treaty. File a special-adjustment MAP request with the STA within the treaty's actual deadline; delivery by hand and post use the specified receipt dates. Establish the procedural effect of the actual MAP request and authority notice before changing investigation, adjustment or payment handling. Suspension of those processes is not established by this Guide; obtain the operative procedure rather than treating an application as a payment deferral. Referral for simplified/combined APA procedures, treaty-specific time limits, royalties after adjustment, customs/VAT effects and implementation details remains explicit (STA Announcement 2016 No.64 §§1–4; STA Announcement 2017 No.6 arts. 42,47–48,56).

Two worked examples that recompute

Example 1: documented cost-plus pricing. Assume a functional/comparability study supports a 7% gross cost mark-up on a 6000000 yuan qualifying cost pool. Arm's-length revenue=6420000; gross profit=420000. If booked revenue was 6300000, the upward adjustment is 120000. Assuming the taxpayer's separately confirmed EIT rate is 25%, additional EIT is 30000, before interest. The 7% is an assumed study result, not a statutory margin (STA Announcement 2017 No.6 art. 19; Enterprise Income Tax Law art. 4).

name: China cost-plus illustration, assumed benchmark
inputs:
  qualifying_cost: 6000000
  benchmark_markup: 0.07
  booked_revenue: 6300000
steps:
  arm_length_revenue: qualifying_cost * (1 + benchmark_markup)
  gross_profit: arm_length_revenue - qualifying_cost
  adjustment: arm_length_revenue - booked_revenue
  additional_eit: adjustment * 0.25
expected:
  arm_length_revenue: 6420000
  gross_profit: 420000
  adjustment: 120000
  additional_eit: 30000

Example 2: resale-price method. Assume independent resale receipts of 10000000 yuan and a supported comparable gross margin of 18%. Arm's-length related purchase price=8200000; reseller gross profit=1800000. If its booked related purchase cost was 8600000, reducing it by 400000 increases taxable profit by 400000; at the assumed applicable 25% rate, additional EIT=100000 before interest. The 18% is an assumed comparable result, not a safe harbour (STA Announcement 2017 No.6 art. 18).

name: China resale-price illustration, assumed comparable margin
inputs:
  independent_resale: 10000000
  comparable_gross_margin: 0.18
  booked_purchase: 8600000
steps:
  arm_length_purchase: independent_resale * (1 - comparable_gross_margin)
  reseller_gross_profit: independent_resale - arm_length_purchase
  adjustment: booked_purchase - arm_length_purchase
  additional_eit: adjustment * 0.25
expected:
  arm_length_purchase: 8200000
  reseller_gross_profit: 1800000
  adjustment: 400000
  additional_eit: 100000

Ask the client first

• Which entities, owners, family interests, guarantees, appointments and control arrangements establish relationships, and for what periods?
• What are the annual transaction amounts by category, currencies, customs values and accounting reconciliations?
• Is an APA already in force? Which transactions/years does it cover? Are there only domestic transactions?
• Does a qualifying simple-function enterprise have a loss? What functions, assets and risks explain it?
• Has the ultimate-parent group prepared a master file? What is its accounting year and prior consolidated revenue? Who files CbCR and where?
• What contracts, segmented financials, cost pools, benefit evidence and comparables support the method? Which facts differ from the assumptions in the examples?
• Is this preparation, a tax-office information request, an investigation, a voluntary correction, an APA or treaty MAP? What dates appear on the notices?

Sources

Source	Official URL	Read on
STA Announcement 2016 No.42	https://www.chinatax.gov.cn/n810219/n810744/n2959156/n2959166/c2208516/content.html	2026-10-29
STA Announcement 2017 No.6	https://shanghai.chinatax.gov.cn/zcfw/zcfgk/ssxd/201706/t432408.html	2026-10-29
STA Announcement 2016 No.64	https://www.chinatax.gov.cn/chinatax/n810341/n810765/n1990035/201610/c2458312/content.html	2026-10-29
Enterprise Income Tax Law	https://shanghai.chinatax.gov.cn/zcfw/zcfgk/qysds/200801/t286573.html	2026-10-29
EIT Implementation Regulations	https://shanghai.chinatax.gov.cn/zcfw/zcfgk/qysds/200801/t286574.html	2026-10-29

General reference only. This Guide is general tax/accounting reference material for AI-assisted workflows. It has not been reviewed for any specific person's facts, documents, elections, deadlines, residency, filing status or local procedures. A qualified professional in the relevant jurisdiction must review the work before filing, paying or taking a tax position.

Not yet confirmed: procedural suspension effects of MAP requests; numerical historical PBOC interest benchmarks, the entity-specific thin-capitalisation ratio and exceptions, current special reporting-failure fines, simplified/combined APA eligibility and procedural details, unilateral/bilateral fee schedules, 2027 form-screen coordinates, treaty-specific MAP deadlines, TP adjustments' VAT/customs consequences and Pillar Two interaction. These are referrals; the documentation/reporting thresholds above do not determine them.