Research On Transfer Pricing Tax Avoidance And Special Tax Adjustment Of The Related Party

In recent years, the scale of international capital flows and multinational operations expandsincreasingly. So far, China has attracted more than a trillion dollars of foreign investment alone. Thenumber of the foreign-invested enterprise is just under700000. At the same time, more and more China’senterprises are going out and establish a number (up to16000) of enterprises outside, whose assets amountto more than a trillion dollars. Foreign investment continues to grow. The development of economicglobalization causes frequent and complex connected transaction,which provides opportunities fortaxpayers to hide tax link, evade tax liabilities, reduce tax burden and increase after-tax profits. Taxpayersusually use all kinds of methods to avoid tax in connected transaction.Among the methods, transfer pricingwhich adjusts the price of product or service according to the regional tax rate difference is most commonlyused by taxpayers, for it can reduce the overall tax burden and maximize after-tax profits.However, transfer pricing avoidance of related party tax will increase the difficulty of tax authorities′tax collection and administration due to its concealment and complexity. Furthermore, it can trigger fiercetax competition among regions. It is in urgent need of the tax authority to adopt effective rule named“special tax adjustments” to constrain and adjust the unreasonable tax avoidance of transfer pricing, inorder to ensure fairness and justice of the tax, maintain the tax equity of our government.Based on the serious situation of affiliated party′s tax avoidance, this article researches on the specifictransfer pricing tax avoidance. After viewing and reading a lot of books and works of literature about therelated party′s transfer pricing tax avoidance and special tax adjustments in domestic and aboard, I will tryto use the methods of literature study and case study to demonstrate this paper.Firstly, this article introduces the tax motivation of the taxpayer from the contract theory andthe information asymmetric theory and the principle of adjustment from the tax authority. Secondly, thispaper introduces the common ways of tax avoidance and the adjust matters about them from the taxauthority. The article focus on related party′s transfer pricing tax avoidance and the tax authority′s specialtax adjustments. It involves the means of transfer pricing tax avoidance, tax authority′s taxation check andthe selection of transfer pricing methods and so on. Then, from the perspective of practice, the paper introduces transfer pricing tax avoidance of M company in the development of market economy of ourcountry. Specifically, this paper analyzes the means of transfer pricing tax avoidance of M company, taxauthority′s taxation check and the tax adjustment. Finally, Combined the tax-related practice of M company,this paper comes up with a series of countermeasures and suggestions in order to help the taxpayerreduce the burden of taxation on the basis of the transfer pricing according with the arm’s length principleand achieve real tax planning. At the same time, this paper can also help the tax authority improve theirwork in the specific practices of transfer pricing tax management, standardize transfer pricing, maintain thetax equity and avoid the loss of tax sources.