Transfer Pricing Audits in China » (First Edition)

ALAN PAISEY previous publications include eight books and over sixty articles in the field of educational management. Since moving to New Zealand he has become interested in recording the experiences of veteran aircrew members and others of the Second World War.

JIAN LI is a senior manager with a specialist consultancy, Transfer Pricing Associates, providing services to multinationals in the Greater China region. Dr Li has extensive experience in accounting, auditing and transfer pricing matters. His doctorial studies focused on transfer pricing theory and practices of multinational companies in the Asia Pacific region.

This book is exclusively focused on the practice of transfer pricing audits which the Chinese government operates in the case of the vast number of foreign enterprises operating in the Chinese economy. It is presented with candour and includes the extensive testimony of Chinese officials about their work, material that given the traditional secrecy of Chinese business and governmental culture, is difficult to come by.

List of Figures     viii
List of Tables     ix
Preface     xii
Foreword     xiv
Field of Audit     1
Foreign Direct Investments and Enterprises     3
Introduction     3
Theories of foreign direct investment     4
Trends and patterns in China     7
Foreign direct investment and foreign trade     14
Summary     17
Transfer Pricing in Concept     18
Introduction     18
Company international tax planning     18
Multinational tax management perspective     21
Chinese practice     26
Summary     30
Mechanics of Audit     31
Transfer Pricing Rules of Trading Partners     33
Introduction     33
Transfer pricing methods     34
OECD transfer pricing guidelines     35
United States     37
Canada     39
France     40
Germany     41
Italy     42
Japan     43
United Kingdom     43
Summary     44
China's Transfer Pricing Rules     45
Introduction     45
Current transfer pricing rules     46
China's transfer pricing regime     48
Summary     51
Associated Enterprises     56
Introduction     56
Organizational structure     56
Related party identity     61
Related party transactions     64
Summary     68
Audit Adjustment Methods     69
Introduction     69
Arm's length principle     69
Transfer pricing methods     71
Selecting the transfer pricing method     78
Double taxation and competent authority     79
Summary     81
Documentation and Penalties     83
Introduction     83
Current requirements     83
Maintenance of documentation     85
Functional analysis     86
Cost sharing agreement     88
Fines and charges     89
Summary     89
Advance Pricing Agreements     90
Introduction     90
Case in point     90
Applying for an advance pricing agreement     92
Summary     99
Contemporary Audit System      101
Introduction     101
Tax audit procedures     101
Tax audit structure and practice     108
Operational data     108
Summary     111
Experience of Audit     113
Foreign Company Practice     115
Introduction     115
Company data     115
Transfer pricing methods used     119
Factors affecting transfer pricing     120
Organizational and environmental variable rankings     126
Statistical references     127
Summary     133
Audit in Action     134
Introduction     134
Cases of transfer pricing audits     134
Tangible goods     134
Intangible goods     142
Services     144
Finance     144
Summary     145
Audit Risk Levels     149
Introduction     149
Personal perspectives of tax officials     149
Tax authority perspectives     151
Audit risk model     153
Audit policy and practice development     157
Summary     159
Managing the Audit     160
Introduction      160
Tax authorities at work     160
Personal viewpoint     166
Summary     169
Audits in Future     170
Introduction     170
Development markers     170
Managing audit risks     172
In conclusion     177
Bibliography     178
Index     181