Fiction Overseas Payment is Punished! Featured

Monday, 06 March 2023 15:14

The headquarter of Shanghai A foreign company is located in Europe, due to the shortage of funds, the financial manager of company had signed a management service contract for the arrangement of the foreign company and the European headquarter in order to send funds to the headquarter. Besides, for avoiding applying for a separate non- trade payment to the taxation administration, the financial manager of the A foreign company deliberately had controlled the amount of management fee for each non-trade foreign exchange payment to RMB 300,000 (i.e. within USD 50,000).


Since Jan. 2021,the A foreign company had paid RMB 300,000 fixed management fee for European headquarter every month, but at the end of 2021, through the Golden Tax Phase Ⅲ System, tax administration had found that the non-trade payment management fee of RMB 300,000 per month had been abnormal. So, the tax administration had taken investigations.


Although the company had signed a management service contract with the European headquarter, it couldn’t provide a written basis to the tax administration to prove the authenticity, necessity and reasonableness of the management services provided by headquarter to foreign company. By the deeply investigations, it had been thought the fictitious transactions finally, so severe penalties had been imposed on the foreign company and the financial manager.


Dongjin Remind:

For avoiding or sending funds to the overseas, a few foreign companies fabricate service contracts and use non-trade payment methods to pay for management fee to the foreign headquarters.


Although some foreign companies have previously adopted the above methods to remit funds overseas and haven’t been investigated and dealt with by tax administration, the above fields have become the key supervision areas , especially the data analysis function of Golden Tax Ⅲ (which is expected to be a adopted this year is more powerful) can detect such abnormal transactions, and the tax administration will conduct an deeply investigation. For those cannot provide written basis of foreign companies to prove reality, necessity and reasonableness of related services, there is a high probability that it will be recognized as a fictitious transaction and punished by the tax administration.



Mike Chang


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