About Transfer Pricing

Thursday, 26 July 2012 11:03

The Concept of “transfer pricing”

“Transfer pricing” refers to the calculation methods to be applied to associated enterprises’ related party transactions, when such transactions are not on an arm's length price reflected by the public market independently. Transfer pricing is an internal price used by associated enterprises in order to target the global strategy of profits maximization by allocating profits in those jurisdictions where better tax treatments are available.


Existing legal basis of “transfer pricing” in the PRC

a)      Chapter 6 and other related provisions of the Implementation Measures of Special Tax Adjustments (Trial Version) (Guo Shui Fa `2009` No. 2)

b)      Notice of the State Administration of Taxation on Strengthening the Monitoring and Investigation of Transnational Affiliated Transactions(Guo Shui Han `2009` No. 363)

c)      Notice on conducting examinations of contemporaneous documentation (Guo Shui Han `2010` No. 323)


The supervision efforts of the State Administration of Taxation are well reflected through the issuance of above regulation,



Prerequisites to an Application

- The trading amount of related party transactions exceeds RMB 200 million.

- Other related party transactions exceed RMB 40 million (e.g. Provision of services. Transfer or use of intangible assets)

-Other situations verified by taxation authorities need to prepare a “transfer price” report (e.g. The Company has heavy losses due to related party transaction)


Our analyses and suggestions:

Since January 2008, through the issuance of the new Enterprise Income Tax Law, China has gradually established and improved its taxation theory system of “transfer pricing”, thus taxation authorities are enhancing management to prevent avoidance taken by associated enterprises through related party transactions.


In this connection, the company should pay attention to transaction between the company and an affiliate entity because there maybe transfer pricing issues, and should assess their risks and document their transfer pricing policies in their China operations and avoid potential taxation risk. We have professional team can help you to advice on the documentation you need and the tax authorities requirements regarding this documentation. 


If your Company and you requires any support or assistance, please contact our professional team.

Also we could support your needs relating to on-going accounting, tax and financial matters including assisting in correspondences with Tax Authority or providing tax solutions.

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