| As a multinational company,the transactions between inter-companies are unavoidable,the Transfer pricing becomes the very important part of company strategy making.It needs to achieve the company goal to minimize the effective tax rate,and at the same time needs to follow the government rules to avoid any compliance issue.Company A is an US company,which established the subsidiary in China in 2005,in 2014 the tax authority audit the Income tax of company A(China)for period 2013,and question the transfer price adjustment that the company made,which cause the company paid the tax and double taxation.It becomes critical for company A to make the transfer pricing method more appropriate and compliant with the government regulation.We studied the terms in the Organization for Economic Co-operation and Development(OECD)Transfer pricing guidelines,studied international and domestic transfer pricing status,perform the analysis of the company transfer pricing method,and the profit rate the company had in the past years,also we analysis the different perspective and regulation from Tax authority and Custom authority regarding to the inter-company transaction price.We found out the trade net margin method is the most suitable method for company A,however it is not workable to do transfer pricing adjustment under this method in the current circumstance in order to avoid the Tax and Custom risks.The suggestion is provided on how to setup an appropriate profit target rate to prove the transactions are made at the arm’s length principle.And we noted due to the resource issue,it is not efficient way for company A to apply for the “advance pricing agreements” at this moment,instead,company A could prepare for transfer pricing documentation and improve the communication with Tax authority to minimize the tax risks.As a small and medium-sized multinational company,the research of transfer pricing of company A provides valuable guidance for other similar sized company. |
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