Four Thresholds Decide Whether You Owe Transfer Pricing Documentation
The local file thresholds are specific numbers, tested per category, per year. Below them there is no preparation obligation. Above any one of them, the document is due by 30 June whether or not anyone asks for it.
HainanInc Tax Advisory
· 4 min read
Transfer pricing is treated by most mid-sized groups as a large-company problem, and for many entities that instinct is correct. What makes it dangerous is that the boundary is not a matter of judgement. It is four published numbers, tested by category of transaction, per year — and an entity crosses one of them by doing ordinary business, usually without anyone in the finance function noticing that the year's activity has changed its obligations.
The thresholds, as published
Under the State Taxation Administration's Announcement on Improving Related-Party Reporting and Contemporaneous Documentation (关于完善关联申报和同期资料管理有关事项的公告, 国家税务总局公告2016年第42号) of 29 June 2016, an enterprise must prepare a local file where its annual related-party transaction amounts meet any one of four tests: transfers of ownership of tangible assets exceeding RMB 200 million, computed at annual import and export customs declaration prices for processing trade; transfers of financial assets exceeding RMB 100 million; transfers of ownership of intangible assets exceeding RMB 100 million; or other related-party transaction amounts totalling more than RMB 40 million.
A master file is required where the enterprise's group has already prepared one at the level of the ultimate controlling enterprise whose consolidated statements include it, or where annual related-party transactions exceed RMB 1 billion.
Where these thresholds are set
- Announcement on Improving Related-Party Reporting and Contemporaneous Documentation (关于完善关联申报和同期资料管理有关事项的公告, 国家税务总局公告2016年第42号) — State Taxation Administration, 29 June 2016 — local file thresholds of RMB 200 million for tangible asset ownership transfers, RMB 100 million for financial asset transfers, RMB 100 million for intangible asset ownership transfers and RMB 40 million for other related-party transactions; master file where the group has prepared one or related-party transactions exceed RMB 1 billion.
- Same announcement — the master file is to be prepared within twelve months of the end of the accounting year of the group's ultimate controlling enterprise; the local file and special-issue file by 30 June of the year following the year in which the related-party transactions occurred.
- Notice on Enterprise Income Tax Preferential Policies for the Hainan Free Trade Port (财税〔2020〕31号), continued by 财税〔2025〕3号 to 31 December 2027 — the reduced rate whose existence shapes how intra-group pricing into a Hainan entity is read.
- All positions above verified against the issuing bodies' published texts in September 2026.
The 'other transactions' category is where entities cross without noticing
Of the four, the RMB 40 million category for other related-party transactions catches the most entities unexpectedly, because it is the residual. Intra-group service charges, management fees, licence payments, interest on shareholder funding and cost recharges all land in it, and each individually looks like housekeeping. An entity can pass RMB 40 million in aggregate across a year of unremarkable intra-group activity and acquire a preparation obligation that nobody has been tracking, because no single transaction was large enough to prompt the question.
Nothing is filed, which is exactly why it is missed
The local file and special-issue file must be prepared by 30 June of the following year; the master file within twelve months of the group's ultimate parent's year end. None of these are submitted on those dates. The obligation is to have the documentation in existence and available on request. An obligation with no submission event produces no reminder, no portal deadline and no confirmation — so it is discovered when a request arrives, at which point the document either exists or the entity is already late.
A deadline with nothing to submit generates no reminder. It is met by having remembered, or not at all.
A preferential rate raises the stakes on intra-group pricing
There is a Hainan-specific dimension. Where a group has an entity taxed at a reduced rate, the pricing of transactions between that entity and its affiliates elsewhere is inherently more interesting to a reviewer than it would otherwise be, because the pricing determines how much profit sits in the low-rate entity. That does not make intra-group arrangements improper. It means the documentation supporting them carries more weight, and that documentation is far easier to assemble contemporaneously than to reconstruct from a year that has closed.
What running the position properly looks like
- The four thresholds tested annually by category, even in years the entity expects to be well below them.
- The residual RMB 40 million category tracked in aggregate through the year, not reviewed once at year end.
- Related-party relationships identified and maintained as a list, including ones created by group restructuring rather than by contract.
- Intra-group agreements in existence and consistent with what is actually being charged.
- Documentation prepared by 30 June where any threshold is met, and the threshold test itself documented in years where none is.
Who files the declaration, and who builds the file
The annual related-party declaration is filed with the corporate income tax return, and filing another company's returns is a licensed activity in mainland China. A licensed firm carries the filing. HainanInc identifies the related-party relationships, runs the threshold testing, and prepares and reviews the documentation that sits behind the declaration — which is where the work actually is, since the declaration itself is short and the file supporting it is not.
This is general commentary on published policy, not entity-specific transfer pricing advice. Thresholds and requirements change; confirm the current position before relying on any figure. Positions were verified against published sources in September 2026.