Asia tough on transfer pricing

By Maggie Zhang  |   2009-9-18  |     NEWSPAPER EDITION

MANY multinational companies see the tax departments of China and other Asia-Pacific countries as the toughest in the world when it comes to policing transfer-pricing activities, an industry survey said.

China, India, Australia, South Korea and Japan all have recently stepped up audit activities related to transfer pricing, according to a 60-nation survey by audit, tax and advisory services firm KPMG.

"With the profits of many multinational enterprises shrinking, tax authorities can be expected to ratchet up audit activities to ensure that they get a fair share of a shrinking pool of tax revenues," said Steven Tseng, a KPMG partner in charge of transfer pricing services for China and Asia-Pacific.

Transfer pricing is a murky area of corporate financing used by some firms to avoid taxes in one country by shifting profits to countries with lower tax rates through cross-border transactions.

China is tightening tax regulations across a broad realm, including a levy on fringe benefits paid to employees, such as phone and transport allowances, as it seeks to rake in more revenue amid tight budget times.

China's tax revenue grew rapidly along with economic growth since 1993 before sliding 3.5 percent in the first seven months of this year.

Companies in China will have to contend with tougher monitoring on transfer-pricing practices and increased scrutiny from the State Administration of Taxation.

China's top taxman has issued up to 15 new circulars containing transfer-pricing rules since the release of new regulations adopted at the beginning of this year.