Since the issuance of the Implementation Measures of Special Tax Adjustment (Trial) (Guoshuifa  No.2, hereinafter referred to as the "Circular 2") by the State Administration of Taxation (SAT) in 2009, there have been profound developments of tax administration in many countries across the world, including China. Amidst of the gloomy economy around the globe, governments have been seeking a broader cooperation in tax administration. As a result, OECD and G20 governments agreed on 15 action plans to address base erosion and profit shifting (BEPS). The BEPS final reports published in 2015 have set down the foundation and objective for anti-tax avoidance practice.
Under such circumstances, the SAT took initiatives in 2016 to introduce major revisions to existing transfer pricing (TP) regulations, via promulgating the Public Notice on Matters Regarding Refining the Reporting of Related Party Transactions and Administration of TP Documentation (SAT Public Notice  No. 42, hereinafter referred to as the "Public Notice 42") on 29 June 2016, and the Public Notice on Matters Regarding Enhancing the Administration of Advance Pricing Arrangements (SAT Public Notice  No. 64, hereinafter referred to as the "Public Notice 64") on 11 October 2016.
Based on historical experience in assistance in TP administration and investigation cases, PwC predicts the following potential changes to China’s TP administration and investigation procedures in the context of recent Chinese implementation of the final reports on BEPS Action Plans.