China issued Bulletin 42 to introduce a requirement for a master file for MNC group resident in China if their annual inter-company transaction amount exceeds RMB 1 billion. The master file requirement is effective from fiscal year 2016. A master file shall disclose the relevant MNC group’s overall global business situation, including organizational structure, business description, intangible structure, financing activities, financial and tax status of the group. A master file shall be completed within 12 months after the end of the fiscal year of its ultimate parent company.

China has introduced a requirement for a local file by a Chinese enterprise, if it exceeds any of the thresholds in a particular year like Inter-company purchase/sale of tangible goods of above RMB 200 million (about USD30 million); or Transfer of financial assets of above RMB 100 million (about USD15 million); or Transfer of intangible assets of above RMB 100 million (about USD15 million); or Other related party transactions of above RMB 40 million (about USD 6.2 million). The local file requirement is effective from fiscal year 2016. A local file shall disclose the Chinese enterprise’s business operation and inter-company transactions, and also include a detailed transfer pricing analysis. A local file and a special file shall be completed by 31 June after the calendar year.

China has introduced Country-by-Country (CbC) reporting requirement stating from year of 2016 for domestic entities which is a Chinese resident enterprise, which is the ultimate controlling enterprise of a MNC group, and records a total revenue above RMB 5.5 billion in its last year consolidated financial statement; or a Chinese resident enterprise that is designated by a MNC group to be the reporting enterprise for filing the CbC report.

The Country-by-Country (CbC) report must be submitted by a ultimate parent company resident in China. A parent company is a company that is not a subsidiary of any other company in China. The country by country reporting requirement applies where the consolidated group revenue in the preceding year is above RMB 5.5 billion.

The report must cover group revenue, distinguishing between related and unrelated parties; accounting results before corporate income tax (or similar taxes); and corporate tax (or similar taxes) paid or accrued, including withholding tax. The average number of employees in each entity must be reported. The CbC report must be submitted within twelve months after the end of the tax year.

Taxpayers’ legal responsibility to comply with the regulation has not changed. If an enterprise fails to file the reporting forms on related-party transactions or contemporaneous documentation on time, the tax authorities may require the enterprise to make a correction, and may impose a penalty of no more than RMB 2,000. For serious violations, such as continued noncompliance, penalties between RMB 2,000 and RMB 10,000 could be imposed.