{"id":4738,"date":"2025-11-26T08:41:59","date_gmt":"2025-11-26T08:41:59","guid":{"rendered":"http:\/\/ms-advisory.flow-work.online\/?post_type=k_resource&#038;p=4738"},"modified":"2025-11-26T06:45:58","modified_gmt":"2025-11-26T06:45:58","slug":"transfer-pricing-china","status":"publish","type":"k_resource","link":"https:\/\/msadvisory.com\/resource\/transfer-pricing-china\/","title":{"rendered":"Transfer Pricing in China"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"4738\" class=\"elementor elementor-4738\" data-elementor-post-type=\"k_resource\">\n\t\t\t\t<div class=\"elementor-element elementor-element-2807a448 e-flex e-con-boxed e-con e-parent\" data-id=\"2807a448\" data-element_type=\"container\" data-e-type=\"container\">\n\t\t\t\t\t<div class=\"e-con-inner\">\n\t\t\t\t<div class=\"elementor-element elementor-element-680dbae elementor-widget elementor-widget-text-editor\" data-id=\"680dbae\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t<p>Transfer pricing is a critical international tax issue that significantly impacts many businesses, particularly multinational corporations. In response to the global challenge of tax base erosion and profit shifting (BEPS), Chinese authorities have intensified their enforcement measures to ensure compliance with transfer pricing regulations (<a href=\"https:\/\/www.oecd.org\/content\/dam\/oecd\/en\/topics\/policy-sub-issues\/transfer-pricing\/transfer-pricing-country-profile-china.pdf\" target=\"_blank\" rel=\"noopener\">Read more<\/a> about\u00a0China\u2019s alignment with BEPS\/Action 13 rules). While traditionally a concern for large multinationals, transfer pricing issues increasingly affect small and medium-sized enterprises (SMEs) operating in China. This growing prevalence underscores all businesses need to adopt robust transfer pricing strategies to mitigate risks and adhere to regulatory requirements.<\/p><p>Here we explain how transfer pricing (TP) in China works and what you need to do to ensure compliance. This applies equally to companies operating in china through a <a href=\"https:\/\/msadvisory.com\/service\/wfoe-in-china\/\">Wholly Foreign-Owned Enterprise (WFOE)<\/a> as those operating through a <a href=\"https:\/\/msadvisory.com\/service\/joint-venture-in-china\/\">joint venture<\/a>.\u00a0<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-936df0e elementor-position-left elementor-vertical-align-middle elementor-position-top speak-expert-new elementor-widget elementor-widget-image-box\" data-id=\"936df0e\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"image-box.default\">\n\t\t\t\t\t<div class=\"elementor-image-box-wrapper\"><figure class=\"elementor-image-box-img\"><a href=\"https:\/\/msadvisory.com\/contact\/\" tabindex=\"-1\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/msadvisory.com\/wp-content\/uploads\/2024\/03\/shanghai-china.jpeg\" class=\"attachment-full size-full wp-image-21671\" alt=\"Shanghai China\" srcset=\"https:\/\/msadvisory.com\/wp-content\/uploads\/2024\/03\/shanghai-china.jpeg 1024w, https:\/\/msadvisory.com\/wp-content\/uploads\/2024\/03\/shanghai-china-300x169.jpeg 300w, https:\/\/msadvisory.com\/wp-content\/uploads\/2024\/03\/shanghai-china-768x432.jpeg 768w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><\/figure><div class=\"elementor-image-box-content\"><div class=\"elementor-image-box-title\"><a href=\"https:\/\/msadvisory.com\/contact\/\">Ask Your Questions to Our Experts<\/a><\/div><p class=\"elementor-image-box-description\">Don\u2019t have in-house China TP expertise? MSA can help you draft your Master, Local, Special, and CbCR files according to Chinese standards \u2014 without hiring full-time tax staff. Book a consulting session today.\n\n<span>Message &nbsp;\u2192<\/span><\/p><\/div><\/div>\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-1278d65 elementor-widget elementor-widget-text-editor\" data-id=\"1278d65\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t<h2>Framework of Transfer Pricing in China<\/h2><p>Transfer pricing refers to the prices that are applied when a company makes a transaction between related enterprises within itself, where the enterprises operate in different tax jurisdictions.<\/p><p>To determine if an enterprise is related to another, the following definitions have been provided for \u201cassociated relationships,\u201d according to Chinese law:<\/p><ul><li>Party A has direct or indirect ownership of more than 25% of equity interests of party B;<\/li><li>Direct or indirect ownership by a third party of more than 25% of equity interests in party A and party B;<\/li><li>The existence of loans provided by party A which represents more than 50% of the total paid-up capital of party B;<\/li><li>Party B is dependent on the proprietary technologies of party A for its business activities;<\/li><li>Party A has control of purchase and sales activities or services of party B;<\/li><li>Over half of the directors or senior management personnel party A have been appointed or concurrently hold dual positions with both party A and party B;<\/li><li>Control of activities of party B through other means, such as family members or relatives;<\/li><li>Two parties who are not directly connected but may have other substantial common interests.<\/li><\/ul>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-91b9b32 elementor-widget elementor-widget-text-editor\" data-id=\"91b9b32\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t<h2>What is the Purpose of Transfer Pricing?<\/h2><p>The main objective of transfer pricing regulations being implemented is to avoid profit shifting between entities based in higher-tax jurisdictions and lower-tax jurisdictions, where there is limited economic activity. This allows entities to avoid the tax liable in the higher-tax jurisdictions.<\/p><p>The fundamental principle in transfer pricing is the \u201carm\u2019s length principle\u201d. According to this principle, taxpayers should be able to effectively demonstrate that transactions between the parties are treated and priced similarly to transactions with unrelated third parties.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-0686398 elementor-widget elementor-widget-text-editor\" data-id=\"0686398\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t<h2>Is Transfer Pricing Allowed in China?<\/h2><p>Although China is not a member of the OECD, a transfer pricing framework has been developed by Chinese authorities, which has been adapted from the OECD Base Erosion and Profit Shifting (BEPS) Action Plan 13, incorporated with various local transfer pricing regulations. The Chinese transfer pricing framework is primarily made up of two distinct aspects:<\/p><ul><li>Related party transactions, which must be disclosed during annual CIT filing and annual reporting; and<\/li><li>Transfer pricing documentation is to be prepared by enterprises exceeding the established thresholds (these thresholds derive from <a href=\"https:\/\/www.grantthornton.global\/en\/insights\/articles\/transfer-pricing-guide\/transfer-pricing\" target=\"_blank\" rel=\"noopener\">STA Public Notice 42<\/a>).<\/li><\/ul>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-53117fc3 elementor-widget elementor-widget-text-editor\" data-id=\"53117fc3\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t<h2>Transfer Pricing Documentation in China<\/h2><p>In 2016, the Chinese <a href=\"https:\/\/msadvisory.com\/china-state-administration-of-foreign-exchange\/\" data-wpil-monitor-id=\"507\">State Administration<\/a> of Taxation (STA) introduced a 3-tier transfer pricing documentation framework, which was set out in \u2018Bulletin 42\u2019, which consisted of the<\/p><ol><li>The Master File<\/li><li>The Local File<\/li><li>Country-by-Country Reporting<\/li><\/ol><p>Additionally, any further documentation that is requested is in line with Chinese requirements.<\/p><p>Following <a href=\"https:\/\/www.lexology.com\/library\/detail.aspx?g=262a6f8e-4150-4ffc-9102-84e0f2e3e284\" target=\"_blank\" rel=\"noopener\">Bulletin 42<\/a>, enterprises must prepare mandatory transfer pricing documentation once specified thresholds have been exceeded. Below, we provide an overview of the specific transfer pricing documentation and their respective thresholds.<\/p><h3>Master File<\/h3><p>The Master File is the main transfer pricing documentation that details the transfer pricing policies and activities of larger multinational corporations. It must be prepared by Chinese enterprises and meet specific requirements.<\/p><p>A Master File must be prepared in Chinese and by Chinese legislation, and should include details on the following:<\/p><p>(1) the investment structure;<\/p><p>(2) description of the group business activities;<\/p><p>(3) the group\u2019s intangible assets;<\/p><p>(4) the group\u2019s financing activities; and<\/p><p>(5) financial information and tax status of the group.<\/p><h3>Local File<\/h3><p>A Local File focuses on the Chinese company and the intercompany transactions between the Chinese company and the related company based in another tax jurisdiction. The Chinese enterprise must prepare a Local File if any of the following thresholds are met:<\/p><ul><li>If the Chinese enterprise has annual related party transactions of tangible goods exceeding RMB 200 million;<\/li><li>If the Chinese enterprise has annual related party transactions of intangible assets exceeding RMB 100 million;<\/li><li>If the Chinese enterprise has annual related party transactions of financial assets exceeding RMB 100 million; or,<\/li><li>If the Chinese enterprise has annual related party transactions of any other type exceeding RMB 40 million.<\/li><\/ul><p>The Local File will include details regarding the organizational and shareholding structure, information on business operations, the business strategy of each department\/business segment and financial data of each type of business or product, and more.<\/p><p><strong><em>For a complete list of details in the local file, request \u2018The Complete Guide to <a href=\"https:\/\/msadvisory.com\/doing-business-in-xiamen\/\" data-wpil-monitor-id=\"506\">Doing Business in<\/a> China\u201d in the right contact form.<\/em><\/strong><\/p><h3>Country-by-Country Reporting<\/h3><p>Chinese companies may also be required to prepare Country-by-Country Reporting in the following circumstances:<\/p><ul><li>The Chinese resident company is the ultimate holding company of a group with consolidated revenue that exceeds RMB 5.5 billion in the previous accounting period or,<\/li><li>The holding group nominated the Chinese company as the country-by-country reporting entity.<\/li><\/ul><p>In addition, the Chinese subsidiary of a group may be required to submit Country-by-Country reporting if the group&#8217;s ultimate holding company must prepare the Country-by-Country reporting according to the regulations of the jurisdiction it resides in and one of the following conditions is met:<\/p><ul><li>The group has not provided Country-by-Country reporting to the taxation authority of any jurisdiction;<\/li><li>The group has submitted the Country-by-Country reporting, but the jurisdiction in which the reporting is submitted does not have an information exchange mechanism with China; or,<\/li><li>If, despite the group having submitted the Country-by-Country reporting and the jurisdiction in which the reporting is submitted has an information exchange mechanism with China, the reporting has not been successfully exchanged with China.<\/li><\/ul><p>The content of the Country-by-Country reporting forms is in line with OECD BEPS Action Plan 13 and must be submitted to the in-charge tax authority by May 31<sup>st<\/sup> of the subsequent fiscal year.<\/p><h3>Special File<\/h3><p>If Chinese enterprises meet the following requirements, they would additionally be required to prepare the Special File:<\/p><ul><li>The Chinese enterprise has a cost-sharing arrangement, or,<\/li><li>The Chinese enterprise has exceeded the related party debt-to-equity ratio (5:1 for financial institutions and 2:1 for other enterprises).<\/li><\/ul><p>The Special File should be completed by 30 June of the fiscal year<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-13809d5 elementor-widget elementor-widget-heading\" data-id=\"13809d5\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t\t<h3 class=\"elementor-heading-title elementor-size-default\">Table: Transfer Pricing Documentation<\/h3>\t\t\t\t<\/div>\n\t\t<div class=\"elementor-element elementor-element-a41ab95 e-con-full e-flex e-con e-child\" data-id=\"a41ab95\" data-element_type=\"container\" data-e-type=\"container\">\n\t\t\t\t<div class=\"elementor-element elementor-element-694ad89 elementor-widget elementor-widget-text-editor\" data-id=\"694ad89\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t<table><thead><tr><th><strong>File Type<\/strong><\/th><th>Threshold<\/th><th>Deadline<\/th><th>Key Contents<\/th><\/tr><\/thead><tbody><tr><td><strong>Master File<\/strong><\/td><td>Chinese entity\u2019s aggregated related-party transactions &gt; RMB 1 billion, or the group\u2019s ultimate parent has prepared a master file<\/td><td>Within 12 months after the group parent\u2019s fiscal year-end<\/td><td>Global group structure, intangibles, financing, consolidated financial &amp; tax data<\/td><\/tr><tr><td><strong>Local File<\/strong><\/td><td>Any of: tangible goods &gt; RMB 200m, intangible assets &gt; RMB 100m, financial assets &gt; RMB 100m, or other related-party transactions &gt; RMB 40m<\/td><td>30 June of the following year<\/td><td><a href=\"https:\/\/msadvisory.com\/structure-entity-china\/\" data-wpil-monitor-id=\"508\">China entity\u2019s<\/a> intercompany transactions, functional &amp; risk analysis, comparables, pricing method<\/td><\/tr><tr><td><strong>Special File<\/strong><\/td><td>\u00a0Cost-sharing agreements or excessive debt-to-equity ratio (thin capitalization)<\/td><td>30 June of the following year<\/td><td>Documentation for cost sharing, capital weakening, thin cap issues<\/td><\/tr><tr><td><strong>Country-by-Country Report (CbCR)<\/strong><\/td><td>Group consolidated revenue meets the CbCR threshold, or China is nominated as reporting entity<\/td><td>May 31 of subsequent fiscal year<\/td><td>Allocation of global income, taxes, employee\/tangible assets data<\/td><\/tr><\/tbody><\/table>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-3d21622 elementor-widget elementor-widget-text-editor\" data-id=\"3d21622\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t<h2>Related Party Transactions<\/h2><p>In addition to the previously mentioned transfer pricing document requirements, during the <a href=\"https:\/\/msadvisory.com\/service\/accounting-tax-filing\/assurance\/annual-cit-filing\/\">annual CIT filing<\/a> and annual publication reporting, all foreign-invested enterprises in China should submit the \u201cEnterprise Annual Reporting Forms for Related Party Transactions of the People\u2019s Republic of China,\u201d which are referred to as the so-called \u201cLocal File.\u201d The Local File consists of 22 forms, including Country-by-Country reporting forms and others detailing related party transactions. According to Chinese regulations, these forms should be submitted by May 31<sup>st<\/sup> of the subsequent fiscal year.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-4862a60 elementor-widget elementor-widget-text-editor\" data-id=\"4862a60\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t<h2>Transfer Pricing Methods<\/h2><p>The arm\u2019s length principle is fundamental for selecting an appropriate transfer pricing method. By Chinese regulations, the following transfer pricing methods are identified:<\/p><ul><li>The comparable uncontrolled price method;<\/li><li>The resale price method;<\/li><li>The cost-plus method;<\/li><li>The transactional net margin method;<\/li><li>The profit split method.<\/li><\/ul><p>Chinese regulations do not prescribe a hierarchy for selecting an appropriate transfer pricing method, and other methods can also be applied if they are justifiable and appropriate.<\/p><p>Transfer pricing issues are closely connected to an entity and the rules concerning diversifying profits. Therefore, it is essential for any business that has a Chinese operation to consider the aspects mentioned above and how they may affect them.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t<div class=\"elementor-element elementor-element-05d48bf e-flex e-con-boxed e-con e-parent\" data-id=\"05d48bf\" data-element_type=\"container\" data-e-type=\"container\">\n\t\t\t\t\t<div class=\"e-con-inner\">\n\t\t\t\t<div class=\"elementor-element elementor-element-9d43d28 elementor-widget elementor-widget-text-editor\" data-id=\"9d43d28\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t<h2>How MSA China Can Help<\/h2><p>As your partner in China, we provide assistance with transfer pricing advisory, which includes facilitating the selected transfer pricing method, preparing and submitting master and local files, and more. <a href=\"https:\/\/msadvisory.com\/contact\/\">Get in touch<\/a> with us right away, and our consultants can help with all your transfer pricing needs.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Transfer pricing is a critical international tax issue that significantly impacts many businesses, particularly multinational corporations. In response to the global challenge of tax base erosion and profit shifting (BEPS), Chinese authorities have intensified their enforcement measures to ensure compliance with transfer pricing regulations (Read more about\u00a0China\u2019s alignment with BEPS\/Action 13 rules). While traditionally a [&hellip;]<\/p>\n","protected":false},"author":20,"featured_media":31781,"template":"","resource_cat":[272],"class_list":["post-4738","k_resource","type-k_resource","status-publish","has-post-thumbnail","hentry","resource_cat-our-white-papers"],"acf":[],"_links":{"self":[{"href":"https:\/\/msadvisory.com\/wp-json\/wp\/v2\/k_resource\/4738","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/msadvisory.com\/wp-json\/wp\/v2\/k_resource"}],"about":[{"href":"https:\/\/msadvisory.com\/wp-json\/wp\/v2\/types\/k_resource"}],"author":[{"embeddable":true,"href":"https:\/\/msadvisory.com\/wp-json\/wp\/v2\/users\/20"}],"version-history":[{"count":39,"href":"https:\/\/msadvisory.com\/wp-json\/wp\/v2\/k_resource\/4738\/revisions"}],"predecessor-version":[{"id":42691,"href":"https:\/\/msadvisory.com\/wp-json\/wp\/v2\/k_resource\/4738\/revisions\/42691"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/msadvisory.com\/wp-json\/wp\/v2\/media\/31781"}],"wp:attachment":[{"href":"https:\/\/msadvisory.com\/wp-json\/wp\/v2\/media?parent=4738"}],"wp:term":[{"taxonomy":"resource_cat","embeddable":true,"href":"https:\/\/msadvisory.com\/wp-json\/wp\/v2\/resource_cat?post=4738"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}