An empirical study of tax audits in China on international transfer pricing

Koon Hung CHAN, Lynne CHOW

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

27 Citations (Scopus)

Abstract

This research studies how Chinese tax authorities implement international transfer pricing legislation. The analysis indicates that tax audits on transfer pricing are confined mainly to medium- and small-sized foreign investments, lower-technology companies and transfer of tangible goods, and tend to focus on certain nationality and forms of foreign investment. Persistent losses, low profitability and lack of local partners in joint venture management most often trigger tax audits. The authorities focus on profit results rather than prices, and often use comparable profit method to adjust income. Tax differentials do not appear to be the most important inducement to transfer pricing manipulations.
Original languageEnglish
Pages (from-to)83-112
Number of pages30
JournalJournal of Accounting and Economics
Volume23
Issue number1
DOIs
Publication statusPublished - 1 May 1997
Externally publishedYes

Fingerprint

Empirical study
Tax
International transfers
Audit
China
Transfer pricing
Foreign investment
Profit
Authority
Nationality
Inducement
Joint ventures
Legislation
Trigger
Profitability
Income
Manipulation

Keywords

  • Tax audits; International transfer pricing; China

Cite this

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An empirical study of tax audits in China on international transfer pricing. / CHAN, Koon Hung; CHOW, Lynne.

In: Journal of Accounting and Economics, Vol. 23, No. 1, 01.05.1997, p. 83-112.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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AB - This research studies how Chinese tax authorities implement international transfer pricing legislation. The analysis indicates that tax audits on transfer pricing are confined mainly to medium- and small-sized foreign investments, lower-technology companies and transfer of tangible goods, and tend to focus on certain nationality and forms of foreign investment. Persistent losses, low profitability and lack of local partners in joint venture management most often trigger tax audits. The authorities focus on profit results rather than prices, and often use comparable profit method to adjust income. Tax differentials do not appear to be the most important inducement to transfer pricing manipulations.

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