Transfer Pricing Audits and EnforcementBy Steven Carey, Transfer Pricing Associates

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Transfer pricing audits have existed in China for some time although their intensity and scale has markedly increased over the last five years.

Most of the audits conducted to date have focused on tangible good transactions, in particular those relating to contract manufacturing. Intangible transactions have not been a major area of focus for the tax authorities, until recently. However, the SAT has recently commenced a nation-wide tax audit exercise focusing primarily on royalty payments made by Chinese companies to overseas affiliates. These companies are generally from retailing and consumption goods and services industries.

In recent years, the SAT has adopted a national audit approach, whereby the authorities seek to audit MNCs with a number of subsidiaries with operations across different provinces in China. Such national audits concentrate on both cross border transactions and intra-China related party transactions.

To read the full version of this article, please purchase the May 2009 issue of China Briefing, which can be found in the Asia Briefing Bookstore. Companies requiring assistance may contact any Dezan Shira & Associates' nine national offices at china@dezshira.com for advice or visit www.dezshira.com.

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