Transfer pricing regulations and their implications on foreign investors in China

Pao Yue-kong Library Electronic Theses Database

Transfer pricing regulations and their implications on foreign investors in China

 

Author: Chan, Po-kuen Peggy
Title: Transfer pricing regulations and their implications on foreign investors in China
Year: 1999
Subject: Transfer pricing -- China
Investments, Foreign -- Taxation -- China
Hong Kong Polytechnic University -- Dissertations
Department: Multi-disciplinary Studies
Dept. of Business Studies
Pages: xiii, 170 leaves : ill. ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b1484305
URI: http://theses.lib.polyu.edu.hk/handle/200/2228
Abstract: Over the past decades, tax compliance by multinational corporations conducting business throughout the world has been one of the major focal points of international tax authorities. Developed countries such as the United States, Japan and Britain have introduced rules and regulations relating to compliance issues in the transfer pricing area. Now, China is also gearing up for major developments and changes in its approach to handle transfer pricing issues. As a country attempting to attract more foreign investment, China has offered a plethora of tax incentives, such as tax holidays and reduced income tax rates. Even with these tax incentives, many foreign investment enterprises (FIEs) including wholly owned enterprises (WOEs) and joint ventures (JVs) still resort to other methods to reduce their tax burdens in China, including transfer pricing. In response to a large number of FIEs reporting losses, the tax authorities have developed tax laws and regulations, as well as administrative measures, to deal with transfer pricing issues. My dissertation will relate to the impacts of the legislation on the foreign investors in China. I hope to accomplish three objectives with this paper. First, I will discuss the recent changes in transfer pricing regulations as introduced by the China government. Many of these new regulations may have significant implications on foreign investors regarding the management of transfer pricing system. Second, I want to provide readers with current information on the transfer pricing practices typically employed by foreign investors in China. Such information was obtained from a survey done in 1998. The last objective is to compare the empirical findings with those of earlier studies with the aim of explaining the similarities and differences between the findings of this study and those of the previous studies. The analysis of the empirical findings from surveys and cases studies reveals the similarities and differences in concerns between FIEs from different nationalities. PRC regulations have different degrees of impacts on FIEs with different forms of investment and different activity orientations. Basically, the PRC tax authorities were active on some locations for tax investigations in the past few years. Now the PRC State Administration of Taxation (SAT) determines to increase enforcement and stay on top of transfer pricing issues. It plans to raise the level of awareness and understanding of transfer pricing issues by FIEs in China as quickly as possible. My thesis will further explain the relationship between the two parties - the PRC tax authorities on setting up regulations for the avoidance of transfer pricing abuse and the FIEs on reviewing pricing strategy for tackling the change of regulations. Lastly, this thesis can also be viewed, to some extent, as a framework for transfer pricing study in China.

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