What are the effects of the new legislation introduced by China's State Administration of Taxation ("SAT") concerning business transactions between affiliates?

Under the Notice Concerning Further Strengthening Administration of the Taxation of Transfer Pricing ("Transfer Pricing Notice") issued by the SAT on February 20, 1998, and theRules for the Administration of Business Transactions Between Affiliates (For Trial Implementation)("Affiliate Tax Rules") issued on April 23, 2003, the SAT takes a much tougher stance. The new legislation provides far more detail on the concrete steps to be taken by the tax authorities to tighten the reins on transfer pricing.