SAT Bulletin No. 42 published on July 13, 2016 has replaced the existing transfer pricing documentation regulations in Circular Guoshuifa [2009] No. 2, known as Circular 2. As per Bulletin 42, two parties will be considered related if they have “other substantial common interests.” The regulation recognizes that related-party relationships may change, and relationships should be recognized during the periods when they exist.

Intangibles property: The definition of “intangibles” extends to include commercial secrets, client lists, sales channels, government licenses and other similar items in SAT Bulletin No. 42 published on July 13, 2016.

Intra-group services: SAT Bulletin No. 42 published on July 13, 2016 by China’s State Administration of Taxation (SAT) has introduced an entirely new requirement for the preparation of a Special File wherever a taxpayer engages in intra-group service transactions. The Special File would contain copies of the relevant intercompany agreements, documentation of service cost identification and allocation keys. SAT Bulletin No. 42 also encompasses the provision of services and the recipient, the specific content of services, features, operation method, pricing principles, forms of payment, as well as to benefit the parties after the occurrence of labor and so on.

Cost contribution arrangements: SAT Bulletin No. 42 published on July 13, 2016 has included some special items in documentation requirement for CSA’s.

Financial services: A Special Report is required demonstrating that the taxpayer’s related party debt levels are consistent with the arm’s length principle if its debt to equity ratio exceeds specified ratios.

Main corporate tax rate: Circular Cai Shui [2014] no 59 has extended the 15% tax rate to Technologically Advanced Service Enterprises (TASEs) in 21 trial cities until 31 December 2018. These must provide qualifying services and 50% of employees must have an associate degree or above.