China Gets Aggressive Over Transfer Pricing Documentation

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Apr. 13 – The China tax bureau has become increasingly demanding over provisions of transfer pricing documentation from companies currently undergoing audit in China for the 2009 annual period.

The tax bureau has on occasions been requesting and collecting related party transaction documentation even when no audit is contemplated, with some districts conducting a 100 percent trawl of companies within their jurisdiction.

Companies have been asked to complete an additional number of forms that are normally part of the standard related party transaction documentation package.

It should be noted that companies, and especially subsidiaries of foreign businesses overseas, that have prepared China related party transaction documentation using a global template could be badly exposed in their ability to reply to tax bureau requests.

Additional forms that may be requested include:

  • Functional and risk analysis form
  • Segmented financial analysis form for related party transactions
  • Entities comparability analysis form
  • Relationship of related party confirmation
  • Related party transactions confirmation form
  • Entities comparability analysis confirmation form

The forms are designed to determine whether the comparables selected by the taxpayer match the tested party in terms of the functions and risks. To carry this out additionally requires extensive research suggesting that the target company may already be under tax bureau investigation, including the obtaining of annual reports and so on.

Companies facing such additional transfer pricing documentation requests from the local tax bureau are recommended to take professional advice at the earliest opportunity.

Readers may contact Sabrina Zhang, the national tax partner for Dezan Shira & Associates at if faced with such circumstances.

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The 2010 China Tax Guide

Transfer Pricing in China