Transfer pricing in China

As an effort to tackle tax base erosion and profit shifting, China tax authorities have been focusing on transfer pricing administration by enforcing stringent strong local-flavoured transfer pricing regulations/rules, imposing detailed compliance requirements and invoking ever-increasing scrutiny on related party transactions. Since there are only limited levels of tax appeal in China, most taxpayers will want to avoid a tax dispute getting to the assessment stage. In this connection, the companies should therefore assess their risks and document their transfer pricing policies in their China operations.

What should you expect from a transfer pricing preventive measure?

Advance pricing agreement

This is an agreement between tax authorities and taxpayers on future application of transfer pricing policies. This is an effective measure to mitigate the future transfer pricing risks of a company by ensuring that its future profits will be accepted as reasonable by the tax authorities.

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Cost sharing arrangement (CSA)

This is a mechanism of sharing the costs and risks of the development of intangibles. Through functional analysis, economic analysis and negotiation with tax bureau, CSA can help to mitigate or resolve existing risks such as double taxation, and reduce tax exposure to senior management.

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Dispute resolution

This assists a company in defending against transfer pricing audits by formulating proven strategies and preparing well-grounded defence to support its transfer pricing position, during which, a mutual agreed procedure (“MAP”) may be considered to eliminate double taxation.

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Strategic risk assessment (SRA)

This is designed to analyse a company's structuring, transfer pricing, and permanent establishment issues and provides a high-level evaluation of their tax audit and dispute positions to identify key risks and formulate action plans to reduce risks.

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Tax valuation advisory

This is a “one-stop” solution, from planning, documentation and dispute resolution to assist a company in its China tax valuation issues, provided by a team comprised of tax, valuation and transfer pricing specialists.

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Transfer pricing documentation

This provides a report documenting the arm’s length nature of a company’s (or a Group’s) TP policy as required by China transfer pricing regulations. As the burden of proof in disputes rests with taxpayers, proper documentation and support for a company’s TP policies is important.

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Transfer pricing planning

This facilitates a company to identify planning opportunities, design, implement and maintain a tax efficient and legally compliant structure.

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Contact us

Jeff Yuan

Partner, PwC Hong Kong

Tel: +[86] (21) 2323 3495

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