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	OFFICIAL REPLY OF THE STATE ADMINISTRATION OF TAXATION CONCERNING THE ADJUSTMENT OF THE BUSINESS TRANSACTIONS BETWEEN ENTERPRISES AND THEIR RELATED ENTERPRISES

	(No.1284 [2003] of the State Administration of Taxation November 13, 2003)


SUBJECT : TRANSFER PRICING; FOREIGN COMPANIES
ISSUING DEPARTMENT : THE STATE ADMINISTRATION OF TAXATION
ISSUE DATE : 11/13/2003
IMPLEMENT DATE : 11/13/2003
LENGTH : 288 words
TEXT :

In accordance with Article 13 of the Law of the People's Republic of China on the Income Tax of Foreign-funded Enterprises and Foreign Enterprises and Chapter 4 of the Implementing Rules thereof, Article 36 of the Law of the People's Republic of China on Tax Collection Administration and Articles 51 to 56 of the Implementation Rules thereof, with respect to business transactions between related enterprises, the prices and charges shall be collected or paid as for business transactions between independent enterprises; if the taxable income or amount of gains is reduced as a result of the failure to collect or pay prices or charges as for business transactions between independent enterprises, the tax authorities shall have the right to make reasonable adjustment. The said "reasonable adjustment" shall include: the adjustment method must conform to laws and regulations; the calculation of adjustment shall be based on the comparable prices of and other information about the business transactions between independent enterprises; and where the taxable income or amount of gains is raised, double taxation shall be avoided. Therefore, we agree with the opinions of your office, that, with respect to the adjustment of taxable income or amount of gains made by Guangzhou Municipal Office, SAT after auditing the interests that are paid or collected in the financing transactions between the company in question and its related enterprises and that exceed or go below the amount allowable between enterprises without such relationship, the related enterprises shall be allowed to make corresponding adjustment to avoid double taxation. However, the calculation of the corresponding adjustment of the related enterprises, including pre-tax reduction of cost and amortization, etc., must be in compliance with the provisions of the laws and regulations and the accounting system.