China to act tough on transfer pricing
By Zhang Fengming |
April 14, 2011, Thursday
|
Print Edition
Print Edition
CHINA'S tax man is expected to tighten inspection and enforcement to crack down on tax manipulation via transfer pricing, according to industry veterans.
China retrieved 2.6 billion yuan (US$397 million) in taxes, a rise of 24 percent from a year ago, after completing investigations into 178 cases of transfer pricing in 2010.
The number of cases has remained the same in the past five years but there was a jump in value.
The tax revenue retrieved has risen due to the tax officials' increasing enforcement, the abolition of tax incentives and a unified 25 percent corporate income tax rate.
"China is on track to develop its transfer pricing enforcement program," Chi Cheng, a KPMG partner, said. "They will just continue this effort."
The tax man is also looking at new areas in which taxpayers may manipulate in their inter-company dealings. So it's not necessarily the pricing of goods or services. One of the areas this year that the tax man is looking at is the pricing of shares when companies do their internal reorganization.
"What China would do is not just only focus on the intensity (of enforcement) but also broaden the scope and look at new areas," Chi said.
The tighter rules have put multinational firms in a fix.
Transfer pricing refers to the allocation of prices when goods or services are exchanged within a large business, whether among divisions in one country or among affiliates in other countries. Tax authorities see it as a way for firms to avoid taxes by shifting profits to countries with lower tax rates via cross-border-related party deals.
China retrieved 2.6 billion yuan (US$397 million) in taxes, a rise of 24 percent from a year ago, after completing investigations into 178 cases of transfer pricing in 2010.
The number of cases has remained the same in the past five years but there was a jump in value.
The tax revenue retrieved has risen due to the tax officials' increasing enforcement, the abolition of tax incentives and a unified 25 percent corporate income tax rate.
"China is on track to develop its transfer pricing enforcement program," Chi Cheng, a KPMG partner, said. "They will just continue this effort."
The tax man is also looking at new areas in which taxpayers may manipulate in their inter-company dealings. So it's not necessarily the pricing of goods or services. One of the areas this year that the tax man is looking at is the pricing of shares when companies do their internal reorganization.
"What China would do is not just only focus on the intensity (of enforcement) but also broaden the scope and look at new areas," Chi said.
The tighter rules have put multinational firms in a fix.
Transfer pricing refers to the allocation of prices when goods or services are exchanged within a large business, whether among divisions in one country or among affiliates in other countries. Tax authorities see it as a way for firms to avoid taxes by shifting profits to countries with lower tax rates via cross-border-related party deals.
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