A foreign company is a production oriented company engaged in the medical device industry. In recent years, the epidemic has not affected the operation of A foreign company, but has led to a significant increase in sales and profits due to the shortage of products.
However, the financial situation of its US headquarters has encountered difficulties, so the US headquarters of A foreign company arranged for A foreign company to sign a contract for the use of patent technology in July 2022. Afterwards, A foreign company was required to pay a monthly patent usage fee of USD 48,000 to the US headquarters.
Due to the fact that the amount of each non trade foreign exchange payment by A foreign company did not reach USD 50,000, each foreign exchange payment was directly operated by the opening bank of A foreign company, and no application for review and filing was made to the tax administration. But at the beginning of this year, the State Administration of Foreign Exchange discovered during a spot check that A foreign company had fabricated a patent fee contract and had never used this patent technology from its US headquarters in the actual operation process. A foreign company was deemed to have engaged in foreign exchange evasion behavior and was strictly punished, and the punishment record was included in the credit reporting system of the People's Bank of China.
Subsequently, the competent tax authority also investigated A foreign company, and after investigation and evidence collection, it was concluded that A foreign company fabricated non trade foreign exchange payment, which was actually a transfer of profits. It requested an adjustment to the taxable income of the company and a supplementary payment of corporate income tax.
Dongjin Remind:
Non trade payment in foreign exchange is a key area of violation reviewed by the tax administration and the State Administration of Foreign Exchange. Companies should ensure the authenticity, necessity, and rationality of non trade payment in foreign exchange, and prepare all relevant materials for future reference. Especially, non trade payment contracts should be strictly reviewed before signing.
If the company has any questions or needs professional consultation from Dongjin, please feel free to contact us at any time.
Mike Chang
Partner
mikechang@shanghaiinvest.com