Over recent years, the SAT has become increasingly concerned with tax abuse through transfer pricing in China. It is expected that with the release of Bulletin [2016] 42 on the new China Transfer Pricing Documentation Requirements and Bulletin [2017] 6 on Special Tax Investigations, Adjustments and Mutual Agreement Procedures by the SAT, many companies will be impacted by transfer pricing reviews and audits, in respect of all types of inter-company transactions. There are also always potential conflicts that can arise between tax authorities and taxpayers. Some of the more common issues include:

  • What is driving the value in the industry of the taxpayer: is it R&D, production and assembly, warehousing, logistics, sales or marketing?
  • Can the losses of an entity be explained by reference to its function, asset and risk profile e.g. if the entity is classed as a contract manufacturer is it earning consistent routine profitability?
  • Did the group company really provide any intra-group services to the recipient company, and if so, did the services benefit the recipient group company, and if so, is the charge commensurate with the benefit received such that a third party would have been willing to pay the charge?
  • The brand name was built up by the local group company, so why should it pay a royalty to the so-called legal owner of the brand?
  • How to create supporting evidence of the current compensation to the local sales and marketing operations in cases where no historic documentation has been created?

To avoid potential tax audit risks, it would be prudent for taxpayers to take positive and proactive steps to address the practical issues relating to the actual operation of the transfer pricing legislation, and to efffectively manage their transfer pricing audit risks in the Chinese business environment.

We have developed a range of Transfer Pricing Risks Management and Control tools to help multinationals to effectively conduct transfer pricing risk assessment and audit defense.

Key features of the software

Key features of the software

  • Perform transfer pricing risk management;
  • Simplify tax and transfer pricing risk management and process;
  • Make transfer pricing compliance cycle more efficient;
  • Collect, prepare, compile, analyze and maintain related party transaction data (Financials, calculations, etc.);
  • Discover their own potential transfer pricing risks and make self-adjustments;
  • Perform proper communication to stakeholders (parents/subsidiaries, in-charge tax authorities, etc.);
  • Streamline transfer pricing tax audit process; record and maintain a log of transfer pricing activities and calculations;
  • The automate of workflows through in-house/external software applications to reduce manual work intervention.