Transfer pricing in the purchase and sale business between affiliated enterprises
At present, China's transfer pricing is mainly characterized by "low output of AG" or "low input and high output". For example, the parent company provides transfer pricing to its subsidiaries at low prices.
Materials, in order to reduce the product cost of subsidiaries, to obtain higher profits. Or the parent company sells products to its subsidiaries at high prices, thereby increasing the product cost of the subsidiaries and reducing the profits of the subsidiaries. Whether it is "low output of AG" or "low input and high output" mainly depends on the tax rate difference between domestic and foreign markets. Usually, enterprises will transfer their income and profits to low-tax countries or tax havens.
Provide transfer pricing through labor services between affiliated enterprises.
Secondly, patent transfer and technical services between affiliated enterprises. The pricing of patents and technical services is complicated, and the payment and receipt of related expenses are flexible. Accordingly, affiliated companies can easily control internal costs and profits.
Transfer pricing of capital transactions between affiliated enterprises.
Internal loans of multinational enterprises have great flexibility and can obtain tax avoidance benefits under certain conditions. In order to pay less taxes in a country, multinational companies can lend money to their subsidiaries at higher interest rates and charge interest, so that the loan interest repaid by subsidiaries to their parent companies can be deducted from the tax as the expenses of subsidiaries. In addition, if the parent company is in a country with low tax rate, then the interest income it earns only needs to pay a small amount of tax. In this way, the overall profit of the group enterprise is maximized.
Transfer pricing by providing affiliated enterprise equipment
The cost of purchasing or leasing fixed assets directly determines the profit of an enterprise. The purchase fee or lease fee for purchasing fixed assets between affiliated enterprises directly affects the amount of depreciation expenses extracted by enterprises, and ultimately affects the profit distribution between enterprises. Leasing the assets of one company to another company within a multinational enterprise can reduce the tax burden. A subsidiary located in a country with high income tax borrows money to buy an asset and rents it to a subsidiary located in a country with low income tax at a lower price, and the latter rents the asset to another subsidiary at the highest possible price, so as to reduce the tax payment of the whole enterprise. In addition, leasing companies can also lease equipment to affiliated companies that are difficult to obtain financing, which can reduce the overall tax revenue and help enterprises obtain financial financing.