Author granted license

Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International

Document Type

Working Paper

Publication Date





Any contemporary Chinese transfer pricing assessment needs to consider the United Nation (UN) Practical Manual on Transfer Pricing for Developing Countries released in May 2013. In particular, Chapter 10 discusses Country Practices and presents China’s most up to date transfer pricing policy statement.

China is not an Organization for Economic Cooperation and Development (OECD) member nor has it formally adopted the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Chapter 10 makes it very clear that China is charting a different transfer pricing course in at least nine important areas. China believes that: 1. significant comparability adjustments are needed when comparable sets are drawn from developed countries; 2. the transactional net margin (TNMM) is considered overused and inaccurate; 3. location savings must be reflected in the costs; 4. toll manufacturers will be converted into contract manufacturers; 5. limited risk distributor status is denied for brand building distributors; 6. market premiums must be reflected in Chinese profits; 7. tax haven based IP ownership can be “looked through” or denied; 8. cost-plus methodology is rejected for “high and new technology status” (HNTS) entities; 9. royalty adjustments over time are necessary.

The Chinese approach to transfer pricing or at least the approach presented in the Practical Manual uses familiar OECD terminology but it places a very different emphasis on some basic concepts in the OECD Guidelines.

Thus, the Chinese market economics strengthens the State Administration of Taxation’s hand and encourages more forceful transfer pricing policies. This is the case even though these policies diverge from OECD norms. This paper considers the nine major areas where the Chinese position in the UN Practical Manual differs from positions in the OECD Guidelines.

Find on SSRN



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.