Transfer pricing

The State Administration of Taxation recently promulgated transfer pricing measures detailing the administrative rules for all special tax adjustments with the intention of ensuring high standards and consistency throughout the various local tax bureaus in China, making the administration and enforcement of transfer pricing-related issues uniform. The new rules will act as a foundation for future policy changes to China?s transfer pricing regime.

When choosing a transfer pricing method, companies will need to take into account the characteristics of the assets or services involved in the transaction, the functions and risks of each transactional party, the terms of the contract, the economic circumstances, and their business strategies.

It should be noted that the tax authorities will investigate companies that tend to have the following characteristics: significant amounts or numerous types of related party transactions; long-term losses, low profitability, or fluctuating patters of profit and loss; below average profitability than industry standards or profits that do not match the companies functions; business dealings with companies established in tax havens; absent or incomplete transfer pricing documentation; and obvious violations of the arm?s length principle.
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