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A study on Cost Contribution Arrangement in the implementation rules for PRC special tax adjustments

  • DONG-A LAW REVIEW
  • 2011, (50), pp.99-132
  • Publisher : The Institute for Legal Studies Dong-A University
  • Research Area : Social Science > Law

Kim, Tae-Ho 1

1중국정법대학

Accredited

ABSTRACT

Tax administration in the People's Republic of China entered a new era in 2008 with enactment of the Enterprise Income Tax Law. Articles 41-48 of 'Chapter 6 – Special Tax Adjustments' of the EIT Law and Articles 109-123 of its detailed Implementation Rules establish a new basis for the Chinese tax authorities to make special tax adjustments related to areas such as Transfer Pricing, Thin Capitalization, General Anti-avoidance Rules, and Controlled Foreign Corporations. In addition, the EIT Law and its Implementation Rules provide the basis for Chinese enterprises to enter into Advanced Pricing Arrangements and Cost Contribution Arrangement. The State Administration of Taxation published the Implementation Regulations for Special Tax Adjustments as set out in notice, Guo Shui Fa [2009] No. 2, dated 8 January 2009. The growing complexity of business operations and commercial dealings has caused MNCs to seek a wider spectrum of support and assistance from both internal and external resources. CCA allows parties to agree to pool risks and resources for the purpose of developing intangibles and to share the benefits of such developed intangibles. As a result, MNCs often put in place CCAs to optimize their available resources so as to manage their overall business operations and their costs. The EIT Law and its Implementation Rules introduce the CCA concept to China for the first time and state that CCAs may cover the joint development of intangible assets and the provision of services. For cost sharing related to service activities, Article 67 of the STA Rules restricts acceptable services to group purchasing and group marketing activities. Because of lack of deepen understanding to the existing CCAs in China, few CCAs between related parties' transactions of intangibles and services might be exposed to not only double taxation but also taxation dispute between both countries' tax authorities. Thus it is necessary to study laws and regulations regulated CCA in both Korea and China. In this paper, the study had been focused to the CCA and then OECD Guideline and papers and books related CCA in China and Korea.

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