Study On Transfer Pricing Issue Of Mavick Food Company

Transfer pricing is one of the major means of tax avoidance used by the multinational enterprises for the purpose of minimizing the tax burden.As the transfer pricing is an internal price set between the related party companies and is not determined based on the market supply and demand relationship,it is deemed not to be an arm's length price hurting the tax revenue of a government.As a result,the tax authorities of various countries have their own stringent legislation to monitor transfer pricing and the related party transactions.With the new Corporate Income Tax.Law and the Implementation Measures of Special Tax Adjustments(Guo Shui Fa[2009]No.2)effective separately in 2008 and 2009,they promote the clarification of transfer pricing regulation in China.This brings higher tax exposure to those multinational companies with significant related party transactions than ever.This alerts such multinational companies have to internally review their transfer pricing related tax risk and evaluate the effectiveness of their transfer pricing management.This thesis will first introduce the basic theories of transfer pricing and the arm's length principle as well as the transfer pricing tax regulation of China,then analyze the current situation of the related party transaction and transfer pricing policy of Mavick Food Company,and then seek the benchmark for Mavick's transfer pricing by exercising these theories and tax regulation The thesis concludes that the related party transactions of Mavick is not an arm's length transaction and the company would have a high tax risk of transfer pricing as well as the subsequent tax adjustment risk through comparability analysis.The thesis will further identify the major problems with Mavick's transfer pricing management:related party transactions mode without reasonable commercial purposes;transfer pricing policy with severe defect;lack of contemporaneous transfer pricing documentation and lack of transfer pricing management system.Suggestions and recommendations are also given to the company at the end of the thesis to mitigate the tax riskThis thesis looks at the transfer price issue of an enterprise from the viewpoint of an independent observer instead of the tax authorities.It is aimed to solve the practical problems avoiding academic reasoning of theory to theory.The way of analyzing and studying the transfer pricing issue in this thesis can be used as a reference for other similar case study.