How Does the SAT View an SFE from a Transfer Pricing Perspective?
The SAT believes that an SFE which is not involved in such functions as decision making, market development and sales should not bear any of the risks associated with those functions. Accordingly, the global financial crisis, or any other financial misfortune that affects the results of a group of companies, does not provide an opportunity to allocate a share of the losses of the group to a China-based SFE. From China’s transfer pricing perspective, the SFE must continue to maintain a reasonable profit level commensurate with the functions it carries out. What is the Additional Administrative Rule on SFE? According to Circular 363, an SFE with a loss in a particular year will be required to prepare and submit full transfer pricing documentation for that year, before June 20 of the following year, whether or not the inter-company transactions level exceeds the relevant thresholds at which such full documentation is usually required. In other words, an SFE with losses with inter-company
