The development of transfer pricing in China

As a developing country, China is a relative late-comer in the global transfer pricing arena. While the Chinese tax authority, the State Administration of Taxation (SAT)1 has been adept at leveraging the international tax experience of other countries, from the 1980s onwards China began to establish her own unique transfer pricing system.

This article will examine key transfer pricing developments in China, looking at tax policy and practice in light of the increasing sophistication of her transfer pricing rules and regulations and enhanced enforcement practices. It will highlight features of the origin and development of China's transfer pricing system that are specific to China, including its genesis from the local pilot programs and the local administrative regulations of the Shenzhen City government, the fact that most of China's detailed transfer pricing rules take the form of departmental tax documents which provide the SAT with a large amount of discretion in the implementation of these rules, and the relatively small role that judicial review plays in the regulation of transfer pricing.