IT has been reported that the Shaanxi Provincial State Tax Bureau, has concluded China’s first thin capitalisation audit case. Besides thin capitalisation, the case also involves the investigation of tangible goods transactions and equity transfer. During the process, the SAT was also involved in providing support to local in-charge tax authorities.

Taxpayers have been advised to closely monitor their financing arrangements and debt-to-equity ratios in particular. Taxpayers have been asked to prepare proper documentation where the threshold ratios are exceeded in order to secure interest expense deductions, avoid the additional five percent penalty component of the interest levy, and mitigate transfer pricing adjustment risks.