China SAT's views on intra-group services and management fees

Tax Insights ()
In response to the United Nation’s request for comments on intra-group services and management fees, the State Administration of Taxation (SAT) of the People’s Republic of China submitted its views and provided two recommendations to be included in the next update of the United Nations Practical Manual on Transfer Pricing (UN TP Manual).  

The SAT reaffirms its stance that service fees paid and received by related parties must be in compliance with the arm’s length principle.  In regards to management fees, the SAT states that these expenses, in general, relate to shareholder activities and therefore are not deductible for China income tax purposes.  

For the next update of the UN TP Manual, the SAT recommends the UN TP Manual to refer the relevant requirements on transfer pricing documentation in the OECD Action Plan on Base Erosion and Profit Shifting (BEPS) and require that the parent company disclose in the Master File the transfer pricing policies for global intra-group services, including the method and the amount of service fees allocated to each subsidiary.  The SAT also recommends the UN TP Manual to provide additional guidance on how to differentiate royalties from technical service fees.