Q:
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What is a cost apportionment agreement?
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A:
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A cost apportionment agreement is a framework negotiated between a multinational enterprise and its related parties to determine the costs, risks, and benefits that all parties bear and share.
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Q:
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When an enterprise signs (changes) a cost apportionment agreement with its related parties, is it required to file record with tax authority?
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A:
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Yes.
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Q:
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While executing a cost apportionment agreement, is it required to file a record and get reviewed with tax authority?
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No, there is no need.
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Q:
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Is it required to submit Annual Report on Affiliated Transactions of an Enterprise of the People's Republic of China if the cost apportionment agreement has not been executed?
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A:
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Yes. When an enterprise signs (changes) a cost apportionment agreement with its related parties, it means the enterprise occurs related business transactions with its related parties, thus no matter if the agreement is executed, it shall submit Annual Report on Affiliated Transactions of an Enterprise of the People's Republic of China when declare annual taxation.
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Q:
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What principles should the cost apportionment agreement comply with?
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Arm’s length principle and principle of matching cost and benefit, reasonable business purpose and economic substance principle.
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Q:
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Should the enterprise make compensation adjustment during the period of implementing the cost apportionment agreement?
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Where the actual benefits do not match costs during the implementation of the cost apportionment agreement, a compensation adjustment should be made based on the actual situation. Tax authority shall implement Adjustments under Special Tax Investigation if the enterprise did not make the adjustment.
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Should enterprises file the record with tax authority online?
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No. Enterprises shall visit tax service hall to report the cost apportionment agreement within 30 days from the date of signing the agreement.
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FAQ
