On 1 October 2009, Guoshuifa [2009] 124 (“Circular 124”) came into effect. Before Circular 124 was issued, different local-level tax bureaus adopted different administrative practices with regards to non-residents claiming benefits under Sino-foreign double tax agreements ("DTA"). To harmonise standards and to counter any abuses of the DTA system, Circular 124 sets out comprehensive measures for administering the DTA benefit claims of non-tax resident enterprises and individuals in China, in relation to their China-sourced income.

With the issuance of Circular No. 363 (Strengthening the Monitoring and Investigation of Cross-Border Related Party Transactions, Guo Shui Han [2009] No 363) (“Circular 363”), the China State Administration of Taxation (“SAT”) has substantially extended the documentary burden with respect to transfer pricing administration. Multinational groups with cross-border related party transactions will be placed under strict scrutiny going forward to ensure that offshore losses are not allocated to “Single Function Enterprises” (“SFE”) in China.