This service is a core module of China Compliance Risk Review™, designed to support the overall compliance infrastructure for China operations.
CIT risks rarely arise from miscalculation they arise when the underlying logic cannot be defended.
In China, Corporate Income Tax (CIT) is not a standalone tax. It reflects the enterprise’s business model, cost structure, related-party arrangements, and profit logic as a whole.
For many foreign-invested enterprises, CIT risks do not stem from obvious non-compliance, but from:
Cost deductions that lack a coherent tax rationale
Profit levels that do not align with business functions and risks
Management fees or service charges with insufficient substance
Accumulated book–tax differences that have never been reviewed holistically
Such issues may remain manageable in routine filings, yet quickly escalate into high-explanation-cost risks under scrutiny.
The Corporate Income Tax (CIT) Compliance Risk Review is designed to assess precisely these structural and explainability-driven risks.
What Is CIT Compliance Risk
CIT compliance risk rarely manifests as underreporting. Instead, it typically involves:
Whether costs and expenses are substantively reasonable for tax deduction
Whether pre-tax deductions align with the business substance
Whether profit levels reflect the enterprise’s functions and risks in China
Whether related-party charges fall within defensible boundaries
Under current regulatory practices, imbalances in overall logic can trigger scrutiny even if individual items appear compliant.
Key Areas Covered in the Review
1 | Reasonableness of Costs and Tax Deductions
Whether costs directly relate to core business activities
Whether recurring deductions lack sufficient justification
Whether arrangements appear formally compliant but substantively weak
2 | Alignment Between Profit Levels and Business Substance
Whether profits match the functions and risks assumed in China
Whether persistent losses or abnormal profits are explainable
Whether profit volatility has a sound commercial rationale
3 | CIT Risks in Related-Party and Management Fee Arrangements
Whether management or service fees have real business substance
Whether pricing falls within defensible ranges
Whether arrangements risk being viewed as profit shifting
4 | Accumulated Book–Tax Differences and Explainability
Whether book–tax differences are growing over time
Whether explanations are consistent and sustainable
Whether positions can withstand regulatory or audit inquiry
Typical Risk Scenarios
Tax authorities challenge the commercial rationale of deductions
Auditors or due diligence teams question profit structures
Headquarters cannot clearly understand China’s profitability logic
Related-party transactions become a focal point of CIT review
In such cases, the issue is rarely the tax amount — it is the defensibility of the logic.
What This Review Does Not Include
To avoid misunderstanding, this service does not include:
CIT filing or annual reconciliation services
Aggressive tax planning or optimization schemes
Tax audit defense or dispute resolution
Any guarantee regarding CIT outcomes
This is a risk assessment and explainability-focused advisory service, not an execution or tax planning service.
Deliverables
Clients will receive:
A CIT compliance risk rating (Low / Medium / High)
Analysis of key risk drivers and structural issues
Differentiation between structural risks and acceptable deviations
An executive-level CIT compliance explanation summary
Who This Review Is Designed For
Foreign-invested enterprises with ongoing China operations
Companies with related-party charges or management fees
Businesses with complex or volatile profit structures
Organizations preparing for audits, inspections, or due diligence
Position Within China Compliance Risk Review™
The CIT Compliance Risk Review serves as:
An advanced module of China Compliance Risk Review™
A critical complement to VAT and outbound payment risk assessments
A decision-support tool for management and headquarters
CIT risks rarely arise from calculation errors they arise when the underlying business logic can no longer be defended.
We do not make decisions for you; we only help you clarify facts and risks.
Phone : 400 800 7472
Email : info@rtfcpa.com
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