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An empirical study of tax audits in China on international transfer pricing
Journal of Accounting and Economics
  • Koon Hung CHAN, The Chinese University of Hong Kong
  • Lynne CHOW, Hong Kong Polytechnic University
Document Type
Journal article
Publication Date
  • Tax audits; International transfer pricing; China

This research studies how Chinese tax authorities implement international transfer pricing legislation. The analysis indicates that tax audits on transfer pricing are confined mainly to medium- and small-sized foreign investments, lower-technology companies and transfer of tangible goods, and tend to focus on certain nationality and forms of foreign investment. Persistent losses, low profitability and lack of local partners in joint venture management most often trigger tax audits. The authorities focus on profit results rather than prices, and often use comparable profit method to adjust income. Tax differentials do not appear to be the most important inducement to transfer pricing manipulations.

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Citation Information
Chan, K. H., & Chow, L. (1997). An empirical study of tax audits in China on international transfer pricing. Journal of Accounting and Economics, 23(1), 83-112. doi: 10.1016/S0165-4101(96)00445-4