Multinational Companies In China Transfer Pricing Mechanisms And Coping

Multinational Enterprises (short for MNEs) have been playing a great role in the world economy. The building and operating of the foreign affiliates of MNEs'helped fuel the host countries in economic development, increasing employments and technological progress. It is reported by the World Investment Report (2007) that the sales, value added and exports of some 78,000 MNEs and their 780,000 foreign affiliates are estimated to have increased by 18%, 16% and 12% respectively. They accounted for the equivalent of 10% of world GDP and one third of world exports. China continued to host the largest number of foreign affiliates in the world in 2006. Some new problems occurred to China while MNEs have brought economic benefits to China. For example, transfer pricing of intra-trade between MNEs'home corporations and their foreign affiliates has become one of the important ways of tax avoidance. It was revealed by some person of State Administration of Taxation that China lost $30 billion tax revenues because of MNEs'manipulating transfer pricing. This thesis does research on the MNEs'transfer pricing mechanics and the regulation of transfer pricing from the perspective of tax system and therefore, it tried to discover the resolution of regulating the transfer pricing of MNEs.This article is divided into five chapters. The first one is for the introduction. Research introduction, research methods and a review of transfer pricing literature are involved. Chapter Two is the analysis on transfer pricing theory and the concept of transfer pricing, purposes of transfer pricing and model of transfer pricing are included. Chapter Three analyzes the situation of MNEs'transfer pricing in China with the practical analysis method. The last two chapters focus on the regulation of transfer pricing and bring with suggestions by comparison of China's regulation and some developed countries and OCED as well.This article combined the practical method with theoretical method in order to explain transfer pricing well. There are two point of creation. The first one is the building of the transfer pricing model and further, doing practical analysis on China's situation. The second one is to summarize the taxation on transfer pricing in USA, European Union and Japan, therefore, the suggestion to China's transfer pricing taxation is proposed.