China strictly follows the Arm’s Length Principle ALP in its.docVIP

P. R. CHINA’S EXPERIENCE OF TAX ADMINISTRATION ON TRANSFER PRICING OF INTANGIBLE PROPERTY TRANSACTIONS Tizhong LIAO Deputy Director General International Taxation Department State Administration of Taxation People’s Republic of China China has been the world’s largest FDI introducer since 2000. Today almost all important multinationals have their subsidiaries in China, making China the factory of the world. These subsidiaries have all kinds of transactions with their related parties, among which intangible property transaction has become an emerging and increasingly thorny issue for tax administration in China, because it is not rare to see related parties charge extraordinarily high royalties on the property, that harshly bite away the taxable profit of the Chinese party. To protect its tax base, the Chinese tax authority is paying ever more attention to transfer pricing of intangible property transactions. In its transfer pricing administration, China strictly follows the Arm’s Length Principle (ALP), and has been actively exploring how to best apply the principle in China’s specific practice within the framework of the OECD Guidelines on transfer pricing and other internationally acknowledged standards. The ALP is applicable to all types of related party transactions. In fact, China’s Tax Collection and Administration Law and Enterprises Income Tax Law both provide the following: In cases where a taxpayer has made a deal of intangible property transfer or use with its related parties, and in doing so, has not set, charged or paid the arm’s length price, tax authorities may adjust the transfer price by referring to the price unrelated parties may have agreed upon. With the development of China’s transfer pricing work in recent years, related party transactions on intangible properties are becoming an increasingly important type of transfer pricing cases. Against this background, the State Administration of Taxation (SAT) has been trying to build on the OECD Gui