Transfer Pricing in China

Friday, November 20, 2009 10:23
Posted in category Invest in China, The Big Picture
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While in university, and while at Thunderbird, I was exposed to the academic model called transfer pricing. For many firms, it was a key tool for repatriating profits. while for others, it was a way to hollow out a local operation.

In China, they are tough on firms who go to far, and when I received this week’s Transfer Pricing Newsletter from the International Tax Review, the article Transfer Pricing Audits Becoming More Focused in China was the lead. A summary of a recent AMCHAM meeting in Suzhou on the topic, the lead sentence said it all:

Loss making companies, those with strange profit patterns or with large amounts of related party transactions are the key targets of audits in China

.. and once you are found out, the process can be a painful one

the statute of limitation for transfer pricing audits is 10 years and the audit itself can last for 5 years. There are interest and potential interest penalties associated with transfer pricing adjustments and companies have a maximum of 30 days to submit the information required by the tax authorities. The actual audit process is carried out by the local tax authorities unless it is a national audit

Ouch.

Fortunately, for those who are interested in learning more, the International Tax Review site hadd a few other related articles

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