| China has been making great achievements in introducing foreign direct investment since adopting the policy of reform and opening up. However, some problems that cannot be ignored have also arisen, and the outstanding phenomenon of foreign investment enterprises'(FIE) tax avoidance is one of them. As the statistics shows, the range of loss of FIEs in China is 35% to 45% during 1988 to 1993, 63% in 1994, and up to 70% during 1995 to 1999. And the range is even over 90% in very few regions. Through investigation, among the FIEs suffering a loss at present, many are the ones that always run at a loss but never breakdown. This is obviously not in line with the market economy rules and enterprise operation routines. It suggests that many FIEs have the action of tax avoidance, and using the strategy of transfer pricing is the most often used method of tax avoidance for the foreign investors in the Chinese Mainland. So it's an important topic for us to correctly understand transfer pricing and study relevant counter-measures when China is introducing foreign capitals.This thesis is divided into four parts. The first chapter mainly introduces the general problems related to transfer pricing. A transfer price is the price taken when the parent company or the son company is doing business with a son company inside the transnational corporation. It originated from the dealing of commodities and services inside the corporations. The most obvious characteristics of the transfer price is: generally not affected by the market demand and supply, but determined by the very few hierarchy of the corporation according to the overall strategic goals of the transnational corporation and the aims to explore the highest profits. There are many aims for the transnational corporation to adopt the transfer price, but the most important one is to lower the total tax burdens of the company. Even if it is not aimed to avoid tax but to pursue a certain management strategy, this behavior objectively results in the evasion of tax-paying obligation. This is a non-tax-oriented avoidance of tax. Although the transfer price is determined by people, it has a certain basis and standard, for example, it's either on the basis of the costs or the markets. The maker of the price can be the parent company, or the son company. The price can also be determined through negotiations between the parent company and the son company. Of course, there aren't no barriers when adopting the transfer pricing strategy, such as the barriers from the respective profit centers of the transnational corporation, objections fromthe overseas co-investors, restrictions from the government of the host country, differences of economic environment of various countries. All these to some extent have limit influences on the transfer pricing.After introducing the general contents of transfer pricing, the second part analyzes the problems of using transfer pricing to avoid tax by FIEs in the light of the facts of our country. According to the general rules of international tax avoidance, most transnational corporation transfer their profits from high tax regions to low tax regions to reduce the totla tax burdens of the Group. But the FIEs in China transfer their profits from low tax regions to high tax regions. This behavior of avoiding tax in the reverse direction obviously has some background reasons. This passage has an in-depth exploration to this phenomenon. In addition, what methods should the FIEs take to carry out the transfer pricing? And what's the reason why they use it to avoid tax? This chapter has a detailed analysis on these problems. Although I cannot deny that under some circumstances, transfer pricing is useful to the development of our country's economy, generally speaking, transfer pricing has more negative effects on China's economy than good ones.It's not the exclusive phenomenon of our country to use transfer pricing to avoid tax. In fact, with the further development of transnational corporations and the economic globalization, this phenom...
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