What is transfer pricing?

The so-called transfer price, that is, "transfer pricing", refers to the internal price adopted by the parent company and its subsidiaries, subsidiaries and their subsidiaries when trading goods, services or technologies. It is not affected by the relationship between supply and demand in the international market, but only obeys the global strategic goal of multinational corporations and the goal of maximizing their global interests. For example, foreign direct investment enterprises in China buy raw materials from their foreign parent companies, process them into final products, and then sell them back to their parent companies. The price generated in this transaction process is the transfer price. In practice, a considerable number of foreign-invested enterprises can adjust profits, avoid taxes, enjoy preferential treatment, optimize asset allocation, reduce and avoid various risks through "AG low output", "low input and high output" and even "subjective expenditure", so as to achieve the purpose of strategic overall control of the company.

Di Shuzhe, a director of PricewaterhouseCoopers Consulting Co., Ltd. Shanghai Branch and a transfer price expert, made an analogy: suppose an American enterprise imports raw materials from its parent company at the price of 10 after investing in China, and invests an additional $2 in China, and its cost should be 12. The subsidiary in China sold the products back to the parent company at the price of 1 1.5 USD. From the book, this Chinese-funded enterprise is losing money, and its parent company is likely to resell its products to other consumers at the price of 14 US dollars, so its profits will be retained abroad.

A woman who works as an accountant in the Beijing headquarters of a multinational company revealed that foreign companies avoid taxes by transferring prices, accounting for more than 60% of the total tax avoidance. According to another informed source, other tax avoidance methods include using the particularity of intangible assets to let domestic enterprises pay huge patent fees when they need to use the technology, patents and trademarks of multinational companies. At the same time, the parent company of a foreign-funded enterprise desperately lowers the labor cost, and the subsidiary company pays high labor cost to it, and uses the interest rate to realize the price transfer, resulting in a large-scale "loss".