China Intensifies Transfer Pricing Supervision

China Intensifies Transfer Pricing Supervision: Enterprises Urged to Prioritize Risks and Compliance

Data from the State Taxation Administration reveals that in 2023, China conducted transfer pricing investigations on over 1,200 enterprises, recovering more than 5 billion yuan in back taxes and interest. The fairness of related-party transaction pricing and the completeness of documentation have emerged as critical risk points for corporate tax compliance.

In recent years, tax authorities have continuously strengthened the oversight of related-party transactions:

• The Golden Tax Phase IV system enables cross-departmental data sharing,   automatically screening abnormal transactions.

• The  2024 revised Special Tax Adjustment Implementation Measures refines  requirements for comparability analysis.

• Penalties  have been harshened.

Enterprises face four major risks:

1.Pricing  below industry averages may lead to income adjustments and additional tax  payments.

2.Enterprises with related-party transaction volumes exceeding 200 million yuan must prepare master and local files. Incorrect functional risk analysis and improper selection of comparable companies are common issues.

3.Profit margins lower than the industry quartile range are likely to be adjusted.

4.Cross-border  related-party payments and transfer pricing of intangible assets carry  potential tax adjustment risks.

To address these, enterprises can adopt a three-step compliance strategy: regularly update benchmarking analysis reports, ensure logical consistency in documentation, and conduct health checks before major transactions, thereby reducing tax risks and safeguarding the stable development of cross-border operations.