China -  Chinese law firm

Why do foreign enterprises use transfer pricing?

hy do foreign enterprises use transfer pricing?

Foreign enterprises use transfer pricing method for the purpose of seeking huge profits. Despite the tax exemptions and other preferential policies on offer, some foreign businesses adopt low prices but report high prices when importing equipment, pass off inferior goods as quality goods, and raise production costs thereby gaining big profits on equipment with unfair equity ratios. As a result State-owned assets and income tax have been draining away.

Increasing profits outside China - foreign businesses report high prices and charge high technology transfer fees and royalties for the purpose of transferring profits. In some FIEs that are controlled by foreign parties, the Chinese party follows along with the foreign party and relies on the foreign party to make decision on importing technology. The transfer of technology and exclusive rights, such as the transfer of trademarks is entirely controlled by the foreign party. Sometimes the foreign party does not make reasonable valuations and by this means of transfer pricing it reduces it profits in China and increases its profits outside China.



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