Asia-Pacific Transfer Pricing Handbook

Chapter Five

China Implements Transfer Pricing Procedures

The Chinese tax authorities have implemented transfer pricing regulations. These transfer pricing provisions came into force in January 1, 2008, but the tax authorities postponed the contemporaneous documentation requirements until December 31, 2009.

OVERVIEW

The tax practitioner should be aware of three specific facets of the Chinese transfer pricing regulations in particular:

1. The Chinese tax authorities cast “associated enterprises” in a broad net. As a result, the tax authorities in other countries might not view these associated parties, and relationships among these parties, as constituting control. Nevertheless, the Chinese tax authorities would treat these associated parties as constituting associated enterprises and therefore as constituting control. The reader should examine Article 9 in particular.

2. The Chinese tax authorities have emphasized the transfer pricing enforcement process. This enforcement process emphasizes the collection of contemporaneous documents and on the tax authority’s remedies when the enterprise fails to submit these documents.

3. The Chinese transfer pricing regulations are comprehensive in scope. As such, the Chinese transfer pricing regulations address advance pricing arrangements, cost sharing agreements, controlled foreign corporations, thin capitalization, and anti-avoidance provisions.

REGULATIONS

The Chinese transfer pricing regulations comprise 13 chapters:

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