Transfer Pricing in China

Transfer pricing is a reality for any multinational company. Tax authorities need to protect their revenue base and are actively enforcing the arm?s length principle for pricing of intragroup transactions. This means that detailed transfer pricing documentation is required and that companies need to disclose related party information on tax returns, as well as prepare themselves for possible audits.

If designed and implemented early in a business life, a transfer pricing system can complement and support an MNC?s business model and commercial objectives, as well as optimizing its global effective tax rate.

Recent developments in China, including the release of comprehensive transfer pricing regulations in early 2009, have sent a very clear signal that the mainland is no exception to this rule.

This and the following articles explore transfer pricing, providing some practical guidance on how to document related party transactions, how to manage overall transfer pricing risk and how to defend a company’s position in the event of a government audit.

Transfer pricing concerns the prices charged between associated enterprises established in different tax jurisdictions for their intercompany transactions.

Multinational enterprises are growing in number and complexity and are increasingly integrating their operations globally. As a result, they transfer large quantities of goods and services among operating subsidiaries in different countries as well as engage in a range of transactions relating to services, intangible property and financing activities.

The pricing system for such transfers across borders within multinationals creates considerable managerial and tax problems owing to its direct effects on the profits of both parties and the taxable revenue of all countries involved in the transactions.

The diagram above gives an overview of the types of activities and the corresponding inter-company transaction that will be caught within the definition of transfer pricing.

Next :
Transfer Pricing Risk Management

To know more, the whole issue is available (after a free subscription) on China Briefing website with others archives
For more information on China’s legal and tax issues or to ask for professional advices in related matters, please write to info@dezshira.com

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