Hot Topics – Transfer Pricing in China

China has developed an increasingly sophisticated transfer pricing regime. While China in general follows the OECD’s three-tiered documentation structure (Master File, Local File, and Country-by-Country Report) its approach includes notable local characteristics, such as detailed value chain analyses, location-specific advantages, and detailed expectations for intra-group services, royalties and cost allocations. Meanwhile, the issuance of risk alerts is often used by Chinese tax authorities to encourage taxpayers to conduct self-tax adjustment which may often result in double taxation risk. 

Transfer pricing audits in general target companies categorized as high-risk and often involve lengthy processes and a significant documentation burden. Chinese tax authorities are known for their strong audit capabilities and increasing focus on economic substance, value contribution, and the alignment between profits and functions performed locally. 

To manage transfer pricing risk, many companies consider year-end transfer pricing adjustments. However, it is essential to evaluate the potential implications on foreign exchange (FX), other taxes, and even customs duties to ensure a successful and smooth execution of the year-end transfer pricing adjustments. Another area gaining importance is China's Advance Pricing Agreement (APA) program. In particular, bilateral APA negotiations are gaining traction and provide a tool for achieving tax certainty in a complex and evolving environment. Unilateral APAs, however, may involve more locally-driven considerations by the respective local tax bureaus.

Business restructuring and supply chain realignment would often result in potential business or IP transfers in and out of China. These require careful consideration of not only transfer pricing implications but also local practicalities – such as withholding tax, deductibility, and FX remittance feasibility.

To support companies operating in or with China, Deloitte Denmark is hosting this webinar with transfer pricing specialists from Deloitte China. During the session, James Yi Min Zhao, Transfer Pricing Tax Partner at Deloitte China, will provide an overview of the Chinese transfer pricing landscape, key challenges, and audit practices. Practical insights will also be shared on documentation, local expectations, APA experiences, and business restructuring relevant to Danish multinational groups.

The webinar will conclude with a live Q&A session, where you will have the opportunity to raise specific questions about transfer pricing matters in China.