Column: PRC Technical Column(s)

As the global financial crisis continues and the Organisation for Economic Cooperation and Development (OECD) declares a global recession, hopes of a “V”-shaped recovery have dimmed, and an “L”- or “U”-shaped protracted downturn has become the general consensus amongst leading analysts. While economists will debate for years to come the true culprits in the credit and asset bubbles, this article focuses on the impacts of the extended growth cycle on transfer pricing today, when companies operating at the bottom of the “L” are faced not only with a difficult business environment but also with a potentially taxing transfer pricing environment. For those companies that also happen to operate in mainland China (hereafter referred to as China), there is the added challenge of the coming implementation of the provisions contained in Chapter 6, the Special Tax Adjustments section, of the Corporate Income Tax Law (CITL) governing transfer pricing, advance pricing arrangements (APA), cost sharing agreements, controlled foreign corporations, thin capitalisation, and...

China’s economic growth has brought unprecedented spending power to its rapidly growing middle class. Aspirational consumerism has led to a massive increase in the purchase and use of passenger motor vehicles, particularly in the more affluent cities and regions in the east of the country. The Chinese Government has adopted a range of fiscal and other instruments to meet the environmental dangers that are emerging from the country’s growing industrialisation and affluence. These are achieving some success but, in the context of transportation, the explosion of China’s vehicle population with its attendant emissions calls for greater resolve and bigger steps from the Government. Part 2 of this paper examines the environmental situation in China, and introduces the impact of motor vehicles. Part 3 focuses on the general role of motor vehicles in damaging the natural environment. Part 4 considers the taxes and other economic instruments currently imposed in China in respect to motor vehicles over six phases: producing (or importing),...

The processing trade is an important part of China’s export trade, which accounts for 50 per cent of the country’s annual exports. Over the last three decades, foreign investors, especially those from Hong Kong and Taiwan, have been carrying on processing trade in China to manufacture finished products for their customers, who are located mainly in Europe and the US....

Among the more difficult problems in international taxation is how the income of multinational corporations (MNCs) should be allocated to the taxing jurisdictions in which they do business. At present, all countries require MNCs to compute their income separately for each country in which they do business (called “Separate Accounting” (SA)). Another method of computing each country’s income is to apportion a share of the MNC’s world-wide income to each country in which it does business using an apportionment formula (called “Formula Apportionment” (FA))....

Transfer pricing represents an area of concern for many multinational companies operating in China. As China’s economy continues to boom and the incidence of cross-border transactions continues to increase, the Chinese tax authorities have in recent years noticeably intensified their transfer pricing administration and enforcement efforts. With the Corporate Tax Law (CIT Law) in effect from 1 January 2008, the new legislative framework will further formalise China’s transfer pricing regulations. In this article, we will look at the development of transfer pricing in China, including as a background, the state of the law prior to 1 January 2008, the changes under the new CIT Law, and the proposed set of administrative measures for transfer pricing documentation (the Documentation Requirements) expected to be introduced shortly. We will identify the transfer pricing issues that taxpayers can expect under the new China transfer pricing regulatory framework and discuss how these issues can be best managed....

Bonded processing in China is known as the “processing trade”. According to China Customs, processing trade refers to “business activities conducted by a PRC processing enterprise whereby raw and auxiliary materials, spare parts, components, and packaging materials (hereinafter referred to as the ‘raw materials’ ) are imported partially or in full for processing or assembly and subsequent re-exportation as finished products”. Raw materials (RM) required by the processing enterprises to manufacture finished goods (FG) for export are imported in bond; that is, customs-duty-free and import-VAT-free upon importation provided that the FG are ultimately exported. Bonded RM and FG are subject to Customs supervision and control. The Customs handbook (“the handbook”) is used by a processing enterprise to record the inward movement of bonded RM and to register bills of materials (BOM), as well as to record the scrap rate and the outward movement of FG....

The Tax Challenges for Hong Kong and Foreign Investors in China and How to Manage Them...

Reform of Foreign Exchange Regulations of Capital Investment by Foreign Investment Enterprise: The Past, Present & Future...

Customs Exemption on the Importation of Capital Equipment...

Is There a Space for Further Tax Reduction in China?...