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 intra-group 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 article explains transfer pricing, providing practical guidance on what is best practice transfer pricing design, how to document your related party transactions, how to manage overall transfer pricing risk and how to defend your position in the event of scrutiny.
For more information about transfer pricing, please contact Dezan Shira & Associates' China tax experts.