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Shenzhen Introduces Collaborative Mechanism for Customs and Tax Transfer Pricing on Imports — Orbitax Tax News & Alerts

The Shenzhen Customs Authority and Shenzhen Taxation Bureau have jointly issued Circular No. 62 of 18 May 2022 on matters regarding the implementation of a mechanism for the collaborative (coordinated) management of transfer pricing for imported goods from related parties. The mechanism established by the Circular is meant to alleviate transfer pricing issues for enterprises importing goods from related parties, including issues of effective double taxation. Transfer pricing on imports often results in double taxation where the customs authority seeks an increase in the import price, increasing import duties and VAT, while the tax authority seeks a reduction in price, reducing deductions and increasing income tax. Because these are two independent authorities, an enterprise may be subject to both upward and downward adjustments on their related party imports.

As provided by Circular No. 62, enterprises may submit an application for collaborative management if meeting the requirements for an advance customs ruling under Order No. 236 and an advance pricing agreement under Announcement No. 64. After the application is received, the Shenzhen Customs Authority and Shenzhen Taxation Bureau will jointly determine whether the enterprise meets the acceptance conditions within 10 days, with an additional 5-day extension if additional information is needed from the enterprise. Once the application is accepted, the Shenzhen Customs Authority and Shenzhen Taxation Bureau will begin a joint assessment within 15 days, which will involve negotiations with the enterprise for the import price. If consensus is reached, the Shenzhen Customs Authority and Shenzhen Taxation Bureau will sign a "Memorandum of Collaborative Management" with the enterprise. At the same time, an advance ruling on price is issued by the Shenzhen Customs Authority and an advance pricing agreement is reached with the Shenzhen Taxation Bureau.

This collaborative management mechanism for transfer pricing on imports is currently only available in Shenzhen, although it could be expanded to other areas of China in the future.