China: Transfer pricing of intellectual property and intangibles 

  
The recent high-profiled transfer pricing ("TP") disputes have demonstrated tax authorities' increasing focus on related-party intellectual property ("IP") transactions.
 
This article summarises the TP issues of IP transactions in China, addresses the main TP developments under China's new Corporate Income Tax ("CIT") Law (that is, legislation of the Cost Sharing Arrangement), and provides general TP recommendations in relation to IP transactions for multinational corporations doing business in China.
 
Part 1: Snapshot of transfer pricing of IP transactions in China

1. Tax implication of related-party IP transaction in China;
2. Arm's length principle;
3. Transfer pricing methodologies;
4. Economic analysis and benchmarking database; and
5. TP audit on IP transaction.

Part 2: Cost sharing arrangement - transfer pricing development under the CIT Law

1. Cost sharing basis;
2. Tax treatment - withholding income tax and business tax;
3. Implementation effectiveness; and
4. Documentation.

Part 3: Transfer pricing recommendations for related IP transactions under the CIT Law

1. Exploitation of new tax incentive policies;
2. Establishment of supporting documentation; and
3. Advance pricing agreements and cost sharing arrangement - possible management tools.

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This article is reproduced from its original publication entitled "China: transfer pricing of IP and intangibles" in the March 2008 issue of BNA International's Tax Planning International Special Report - Transfer Pricing Aspects of IP and Intangibles.  Copyright 2008 by The Bureau of National Affairs, Inc.  Reprinted with permission.