- Updated
- October 2025
- Sections
- 15
- Questions
- 39
Key Facts
Core Framework
Enterprise Income Tax Law, Chapter 6, Article 41
There is no explicit reference to the OECD Transfer Pricing Guidelines in China’s domestic transfer pricing framework. That being said, China respects OECD TPG and incorporates the basic aspects of OECD TPG in the domestic legislation.
Public Notice of the State Taxation Administration [2017] No.6, Article 15
There is no general preference for domestic comparables, but it really depends on the facts and circumstances. For cases where geographical proximity/local market feature is an important factor that needs to be taken into account in the comparability analysis, domestic comparables can be favored over foreign comparables. However, foreign comparables can be acceptable too, as long as they meet the comparability criteria or appropriate comparability adjustment can be made.
Public Notice of the State Taxation Administration [2017] No.6
Tax authorities are allowed to use both public and secret comparables for transfer pricing assessment purpose.
Public Notice of the State Taxation Administration [2017] No.6, Article 25
When analysing and evaluating whether a related party transaction is consistent with the arm's length principle, tax authorities may calculate different statistics, such as arithmetic average, weighted average or the inter-quartile range to determine the point or range of the profit or price of the comparables. The calculation can be done on a year-by-year basis or multiple-year average basis.
Documentation
Public Notice of the State Taxation Administration [2016] 42
Public Notice of the State Taxation Administration [2016] 42
Public Notice of the State Taxation Administration [2016] 42
Public Notice of the State Taxation Administration [2016] 42, Article 25
For enterprises that file related party transactions, submit contemporaneous documentation and other relevant information in accordance with relevant provisions, when additional tax is imposed by the tax administrations during the special tax investigation, an interest can be levied based on the People’s Bank of China central base lending rates for the same period to which the tax payment is related, in accordance with the provisions under Article 122 of the implementation regulations of the Enterprise Income Tax Law.
TP Methods
- CUP
- Resale Price
- Cost Plus
- TNMM
- Profit Split
- Other
Selection: Most appropriate method
Dispute Resolution
Public Notice of the State Taxation Administration [2016] 64 (Public Notice on Matters Regarding Enhancing the Administration of Advance Pricing Arrangements); Public Notice of the State Taxation Administration [2017] No.6; China's MAP Profile
APAs are allowed under domestic laws. Rollback of an APA is allowed. MAPs regulations, procedures and guidance can be found in Public Notice of the State Taxation Administration [2017] No.6. For further information, please refer to China’s OECD MAP Profile.
Public Notice of the State Taxation Administration [2016] 64 (Public Notice on Matters Regarding Enhancing the Administration of Advance Pricing Arrangements); Public Notice of the State Taxation Administration [2017] No.6; China's MAP Profile
APAs are allowed under domestic laws. Rollback of an APA is allowed. MAPs regulations, procedures and guidance can be found in Public Notice of the State Taxation Administration [2017] No.6. For further information, please refer to China’s OECD MAP Profile.
Simplifications
Special Topics
Public Notice of the State Taxation Administration [2017] No.6, Article 30-32
The guidance on intangibles in China is structured differently from Chapter VI of the TPG, but some important concepts such as the value contribution in the development, enhancement, maintenance, protection, exploitation (DEMPE) of the intangibles have been introduced into the guidance. Consistent with China’s view on the intangibles, value contribution to promotion of the intangibles is also recognized in the guidance. The followings are some other important provisions taken from the guidance. If an enterprise pays royalties to a related party that merely owns the intangible assets but does not contribute to the value of the assets, and the arm's length principle has not been followed, the tax authorities may make a special tax adjustment. Royalties received from or paid to related parties must correspond to the economic benefit the intangible assets bring to the enterprise and its related parties. If there are no economic benefits and the arm's length principle has not been followed, the tax authority may make a special tax adjustment.
Public Notice of the State Taxation Administration [2017] No.6, Article 34-36
Fees paid by subsidiaries that receive intra-group services should not simply be regarded as fees for low value-adding services to which the safe harbor rule applies, but instead, the following "six tests" should be used to determine the arm's length nature of the services: "benefit test," "necessity test," "duplication test," "value creation test," "remuneration test," and "authenticity test." In the following circumstances, if the arm's length principle is not followed, the tax authorities may make a special tax adjustment: • Where an enterprise makes payments to its related parties for non beneficial services; • Where an enterprise makes payments to an overseas related party that does not perform functions, does not bear risks, and has no substantial operating activities; • Where an enterprise establishes a holding company or financing company overseas for the main purpose of financing and listing, and the enterprise pays royalties to an overseas related party due to the spinoff benefits generated from the relevant financing and listing activities.
Full OECD Questionnaire
Legal ReferenceEnterprise Income Tax Law, Chapter 6, Article 41
There is no explicit reference to the OECD Transfer Pricing Guidelines in China’s domestic transfer pricing framework. That being said, China respects OECD TPG and incorporates the basic aspects of OECD TPG in the domestic legislation.
Legal ReferencePublic Notice of the State Taxation Administration [2016] 42
Any of the following relationships of an enterprise (one party) with other enterprises, organisations or individuals (the other party) shall constitute a “related party relationship”: (i) One party directly or indirectly owns 25% or more shares of the other party; or a common third party directly or indirectly owns 25% or more of shares of both parties. (ii) One party owns shares of the other party, or a common third party owns shares of both parties, even though the percentage of shares held in either situation is less than the percentage as specified in item (i), the total debt between both parties accounts for 50% or more of either party’s total paid-in capital, or 10% or more of one party’s total debt is guaranteed by the other party (except for loans or guarantees from or between independent financial institutions). (iii) One party owns shares of the other party, or a common third party owns shares of both parties, even though the percentage of shares held in either situation is less than the percentage as specified in item (i), the business operations of one party depend on the proprietary rights, such as patents, non-patented technological know how, trademarks, copyrights, etc., provided by the other party. (iv) One party owns shares of the other party, or a common third party owns shares of both parties, even though the percentage of shares held in either situation is less than the percentage as specified in item (i), the business activities, such as purchases, sales, receipt of services, provision of services, etc., of one party are controlled by the other party. (v) More than half of the directors or senior management (including secretaries of the board of directors of listed companies, managers, deputy managers, financial controllers and other personnel specified in the company’s articles of association) of one party are appointed or assigned by the other party, or simultaneously serve as directors or senior management of the other party; or more than half of the directors or senior management of both parties are appointed or assigned by a common third party. (vi) Two natural persons who are spouses, related by lineal consanguinity, siblings, or in other custodianship/family maintenance relationships have one of the relationships as specified in items (i) to (v) with one party and the other party respectively. Two parties substantially have common interests in other ways.
Legal ReferencePublic Notice of the State Taxation Administration [2017] No.6 (Public Notice of the State Taxation Administration on Issuing the “Administrative Measures of Special Tax Investigation and Adjustment and Mutual Agreement Procedure”)
Other methods may refer to assets appraisal methods like cost approach, market approach and income approach, and some other methods that are in line with the principle of “profits should be taxed in the jurisdiction where economic activities occur and value is created”.
- CUP (provided)
- Resale Price (provided)
- Cost Plus (provided)
- TNMM (provided)
- Profit Split (provided)
- Other (provided)
Legal ReferencePublic Notice of the State Taxation Administration [2017] No.6, Article 16-22
Tax authorities should select the appropriate transfer pricing method(s) to analyse and examine enterprises’ related party transactions based on comparability analysis.
- Hierarchy of methods (not selected)
- Most appropriate method (selected)
- Other (if so, please explain) (not selected)
No specific guidance on commodity transactions is provided in China’s domestic framework.
Legal ReferencePublic Notice of the State Taxation Administration [2017] No.6, Article 15
There is no general preference for domestic comparables, but it really depends on the facts and circumstances. For cases where geographical proximity/local market feature is an important factor that needs to be taken into account in the comparability analysis, domestic comparables can be favored over foreign comparables. However, foreign comparables can be acceptable too, as long as they meet the comparability criteria or appropriate comparability adjustment can be made.
Legal ReferencePublic Notice of the State Taxation Administration [2017] No.6
Tax authorities are allowed to use both public and secret comparables for transfer pricing assessment purpose.
Legal ReferencePublic Notice of the State Taxation Administration [2017] No.6, Article 25
When analysing and evaluating whether a related party transaction is consistent with the arm's length principle, tax authorities may calculate different statistics, such as arithmetic average, weighted average or the inter-quartile range to determine the point or range of the profit or price of the comparables. The calculation can be done on a year-by-year basis or multiple-year average basis.
Legal ReferencePublic Notice of the State Taxation Administration [2017] No.6, Article 17-20
If there are significant differences between related party transactions and unrelated party transactions, reasonable adjustments should be made to account for the effect of these differences.
Legal ReferencePublic Notice of the State Taxation Administration [2017] No.6, Article 30-32
The guidance on intangibles in China is structured differently from Chapter VI of the TPG, but some important concepts such as the value contribution in the development, enhancement, maintenance, protection, exploitation (DEMPE) of the intangibles have been introduced into the guidance. Consistent with China’s view on the intangibles, value contribution to promotion of the intangibles is also recognized in the guidance. The followings are some other important provisions taken from the guidance. If an enterprise pays royalties to a related party that merely owns the intangible assets but does not contribute to the value of the assets, and the arm's length principle has not been followed, the tax authorities may make a special tax adjustment. Royalties received from or paid to related parties must correspond to the economic benefit the intangible assets bring to the enterprise and its related parties. If there are no economic benefits and the arm's length principle has not been followed, the tax authority may make a special tax adjustment.
Legal ReferencePublic Notice of the State Taxation Administration [2017] No.6, Article 34-36
Fees paid by subsidiaries that receive intra-group services should not simply be regarded as fees for low value-adding services to which the safe harbor rule applies, but instead, the following "six tests" should be used to determine the arm's length nature of the services: "benefit test," "necessity test," "duplication test," "value creation test," "remuneration test," and "authenticity test." In the following circumstances, if the arm's length principle is not followed, the tax authorities may make a special tax adjustment: • Where an enterprise makes payments to its related parties for non beneficial services; • Where an enterprise makes payments to an overseas related party that does not perform functions, does not bear risks, and has no substantial operating activities; • Where an enterprise establishes a holding company or financing company overseas for the main purpose of financing and listing, and the enterprise pays royalties to an overseas related party due to the spinoff benefits generated from the relevant financing and listing activities.
Legal ReferenceCircular Cai Shui [2008] No.121
The thin capitalization rule set out in the Implementation Measures of Special Tax Adjustments (Trial Version) (more commonly known as the “Circular 2”) requires that the related party debt-to-equity ratio should not exceed the standard ratio. Otherwise, the interest expense will not be deductible for income tax purposes unless it can be demonstrated that the related party pricing is consistent with the Arm’s Length Principle. The standard ratio is explicitly provided in Circular Cai Shui [2008] No.121 as 2:1 for business in most industries and 5:1 for companies in the financial services sector. The thin capitalization rule in this sense is not considered other rules outside transfer pricing rules.
Legal ReferenceEnterprise Income Tax Law, Chapter 6, Article 41
The cost incurred in joint development of intangibles by related parties shall be determined by arm’s length principle.
Legal ReferencePublic Notice of the State Taxation Administration [2016] 42
- Master file consistent with Annex I to Chapter V of the TPG (selected)
- Local file consistent with Annex II to Chapter V of the TPG (selected)
- Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
- Specific transfer pricing returns (separate or annexed to the tax return) (selected)
- Other (specify): (not selected)
Legal ReferencePublic Notice of the State Taxation Administration [2016] 42
A master file shall be completed within 12 months of the fiscal year end of the ultimate holding company of the enterprise group. Local file and special issue file shall be completed by 30 June of the year following the year during which the related party transactions occur. Contemporaneous documentation shall be submitted within 30 days after receiving a request from the tax administrations. Contemporaneous documentation shall be prepared in Chinese. The source of information used should be specified. The filing requirement of the country-by-country report is consistent with the OECD guidance. Country-by-country report shall be submitted in both Chinese and English. Non-submission is subject to the general penalty that applies to any non-submission of tax relevant information in China.
Legal ReferencePublic Notice of the State Taxation Administration [2016] 42, Article 25
For enterprises that file related party transactions, submit contemporaneous documentation and other relevant information in accordance with relevant provisions, when additional tax is imposed by the tax administrations during the special tax investigation, an interest can be levied based on the People’s Bank of China central base lending rates for the same period to which the tax payment is related, in accordance with the provisions under Article 122 of the implementation regulations of the Enterprise Income Tax Law.
Legal ReferenceArticle 18 Public Notice of the State Taxation Administration [2016] 42
Enterprises with effective advance pricing agreements in place may choose not to prepare local file and special issue file with respect to the related party transactions covered by such advance pricing agreements.
Legal ReferencePublic Notice of the State Taxation Administration [2016] 64 (Public Notice on Matters Regarding Enhancing the Administration of Advance Pricing Arrangements); Public Notice of the State Taxation Administration [2017] No.6; China's MAP Profile
APAs are allowed under domestic laws. Rollback of an APA is allowed. MAPs regulations, procedures and guidance can be found in Public Notice of the State Taxation Administration [2017] No.6. For further information, please refer to China’s OECD MAP Profile.
- Rulings (not selected)
- Enhanced engagement or cooperative compliance programmes (not selected)
- Advance Pricing Agreements (APA) (selected)
- Unilateral APAs (selected)
- Bilateral APAs (selected)
- Multilateral APAs (selected)
- International Compliance Assurance Programme (ICAP) (not selected)
- Mutual Agreement Procedures (selected)
- Other (please specify): (not selected)
- In-scope tested parties resident within the jurisdiction can elect to apply the simplified and streamlined approach (i.e. safe harbour) (not selected)
- In-scope tested parties resident within the jurisdiction are required to follow the simplified and streamlined approach for in-scope qualified transactions and tax administrations are allowed to impose the application of the simplified and streamlined approach to in-scope qualified transactions of tested parties resident within their jurisdiction (i.e. rule) (not selected)
- N/A (selected)
- 20% (not selected)
- 30% (not selected)
- Other (please specify) (not selected)
- N/A (selected)
China has concluded 111 tax treaties, all of which are based on the pre-2010 version of Article 7. Among these, 60 treaties adopt the exact wording of the pre-2010 Article 7; the remaining 51 treaties generally follow the pre-2010 Article 7 but include certain modifications, such as some treaties incorporate the latter part of paragraph 4 of Article 7 of the 2021 UN Model Tax Convention, some treaties do not incorporate paragraph 4 of pre-2010 version of Article 7, some treaties incorporate provisions regarding the taxation of insurance, etc.
- Article 7 as it read before 2010. (selected)
- Article 7 as it reads after 2010. (not selected)
- Other (please provide additional details) (not selected)
Legal ReferenceCircular of the State Taxation Administration on Issuing Administrative Measures for the Assessment of Non-resident Enterprise Income Tax (Guo Shui Fa [2010] No. 19) Article 3-4
China has made following reservation on Article 7 as it reads after 2010. Whilst the People’s Republic of China understands and respects the separate and independent enterprise principle underlying the new version of Article 7, due to its tax administration capacity it reserves the right to adopt the previous version of the Article and, in some cases, to resort to simpler methods for calculating the profits attributable to a permanent establishment. Please find below China’s approach to the Attribution of Profits to Permanent Establishment. Non-resident enterprises shall set up accounting books in accordance with Tax Collection and Administration Law and relevant laws and regulations, and shall keep accounts based on valid and legal vouchers. Non-resident enterprises shall calculate taxable income accurately according to the principle of functions commensurate with risks, and file and pay enterprise income tax on an actual basis. Where a non-resident enterprise is unable to accurately calculate and file its taxable income on an actual basis due to incomplete accounting books, insufficient data, or other reasons, the tax authority has the power to assess its taxable income.
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