China uses information exchange to investigate related-party transactions

Posted by Zhang Yushuang on December 13, 2009 under Transfer Pricing | Be the First to Comment

A five-year case involving China’s first use of information exchange to confirm related-party transactions and succeed in tax adjustments has recently been finalised in Xiamen. The anti-avoidance investigation adjusted the taxpayer’s taxable income by 28.07 million yuan, and back taxes 2.93 million yuan.

Exchange of information refers to China and competent authorities of other countries exchanging information with respect to taxpayers who have financial interests in both countries. Since 1985, China’s tax authorities has signed information exchange agreements with over 90 countries or regions and achieved fruitful results. With internationalization of the tax base and greater complexity in transactions, the difficulty in collecting valid information, examining tax evasion and taking effective measures has been increasing, and as a result information exchange is becoming a weapon against cross-border tax avoidance and tax evasion.