Revisiting Transfer Pricing in China - Preview

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Transfer pricing has fast become one of the standout issues in international taxation. Put
simply, the practice concerns the price charged for intercompany transactions between
entities in different tax jurisdictions. These transactions can be used to shift funds within
a multinational company (MNC), making transfer pricing an effective means to manage a
firm’s finances and remit its profits.
As more international companies began to pour into China following its opening up period
in the late 1970s, the need for a transfer pricing regime that could effectively collect tax on
intercompany transactions and prevent tax base erosion became increasingly apparent.
Legislation on transfer pricing in the Middle Kingdom therefore has a relatively long history
that stretches back to the early 1990s, but the majority of this has been piecemeal, and it is
only in the last ten years that the country began implementing comprehensive regulations.
2016, in particular, has seen the release of new laws that have revamped transfer pricing
compliance for MNCs in China.
If implemented early in a Chinese entity’s business life, a transfer pricing system can
complement and support an MNC’s business model and commercial objectives, as well as
optimize its global effective tax rate. Non-compliance with China’s new transfer pricing laws,
however, can result in heavy penalties for an MNC, and subsequently eat into its bottom line.
In our 24 years of experience dealing with China’s idiosyncratic tax system, Dezan Shira
has closely observed and analyzed the development of the country’s transfer pricing laws.
In this issue of China Briefing, we provide a guide to navigating China’s latest regulations,
highlighting the main issues that exist for foreign companies, and explaining the various
transfer pricing methods and processes that exist.
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邹传安
Oil on canvas, 70x84 CM
Wan Fung Art Gallery
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Introduction
With kind regards,
Sabrina Zhang