Case Studies

China funds repatriation and assistance in tax investigation

A well known US construction material company and its Chinese subsidiary agree to make large payments to the US headquarters for the application engineering services provided by US headquarters every year.

In 2019, the Chinese subsidiary has been requested by the district tax authority to explain the service content, service fee calculation method and the differences between the application engineering service charges and the loyalties charged by its related companies in the US. The client’s China office has been noticed by the tax authority that the outbound payments of the application engineering service charges would be postponed until the tax authority completes its follow-up investigation and the tax authority may even implement the anti-tax avoidance investigation against the unexplained outbound payments.

Acadia were engaged by the company to assist in dealing with the tax investigation and making detailed explanations to the tax authority on the service content, service process, fee calculation method and the differences with loyalties.  We were also engaged to assist the company to prepare and provide the supporting documents as required by the tax authority to collaborate the authenticity and reasonableness of the outbound payments.  After the positive and professional communication and coordination with the tax authority, the investigation was closed with the tax authority’s accommodation on the company’s proposed tax treatments for the outbound payments (i.e. agreeing to a relatively lower deemed profit rate in declaring income taxes).

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