The Research Of Transfer Pricing Risks Of Multinational Companies

In past 30 years, Foreign Investment Companies, especially the Multinational Companies, were always playing a very important role in China economy. MNCs brought a lot of new ideas, techniques and practices, while they increased their direct investments in China.However, to maximize shareholders'interests and align with their global strategies, MNCs adopted a lot of transfer pricing instruments to increase their group profit, as well as to reduce the tax cost.To avoid the tax loss, Chinese Tax Authority has implemented some new regulations, used the advanced oversea experience for the reference. In 2004, Chinese State Administration of Taxation issued Tax Administration Rules and Procedures for Transactions between Associated Enterprises (revised) and Detailed Rules for the Implementation of Advanced pricing Agreement for Transactions between Associated Enterprises (for trial). Furthermore, the New Corporate Income Tax Law added some new contents related to Special Tax Adjustments in 2008. With the continue improvements of related tax regulations and executions, MNCs are facing more and more risks on transfer pricing tax system.The paper introduced some basic concepts & ideas related transfer pricing, together with an overall review on the history of transfer pricing's development. The paper highlighted some key transfer pricing risks, based on the study of the local development trend. More important, the paper detail explained the Advanced Pricing Agreement, which is a very popular transfer pricing methodology adopted by large MNCs. The paper also point out the strength and weakness of APA, based on the case study of the first Bilateral APA between China & United States.Finally, the author gave some personal advices on how to minimize the transfer pricing risks of MNCs, both from the strategy and operation level. Hope it helps.