Transfer Pricing guide: China
Read below for more detailed information on transfer pricing regulations, document requirements, and other considerations for China, as well as recent industry hot topics and key developments in the country's business landscape.
Page updated 1st July 2025
Transfer Pricing regulations
Is the jurisdiction part of OECD/G20 Inclusive Framework on BEPS?
China is not an OECD member jurisdiction. However, there were domestic regulations echoing certain topic/discussion on the OECD/G20 Framework on BEPS.
Relevant Transfer Pricing regulation
SAT Annoucement 2016 No. 42
Is this regulation aligned with the OECD Guidelines
State Administration of Taxation (SAT) issued Announcement on the Enhancement of the Reporting of Related Party Transactions and Administration of Contemporaneous Documentation ("Announcement 42") in June 2016 (made available to public in July 2016). Announcement 42 integrates, into Chinese tax regulations, the OECD/G20 BEPS Action 13 Report recommendations on transfer pricing documentation (i.e. the Master File and the Local File).
Transfer Pricing documentation requirements
Documentation Threshold for Preparation of Local File/ TP Documentation
Companies are required to prepare the Local File if meeting any one of the following thresholds:
- Transfers of tangible assets exceed RMB 200 million (for processing/toll manufacturing, the customs declared value of imports and exports for the year should be included);
- Transfers of financial assets exceed RMB 100 million;
- Transfers in ownership of intangible assets exceed RMB 100 million; or
- All other transactions, including services, royalites (licensing transactions), interest on financing transactions etc. exceed RMB 40 million.
Documentation Threshold for Preparation of Master File
Companies that are required to prepare the Master File include:
- A company with cross-border related party transactions and the MNE, to which the company’s ultimate holding company belongs, has already prepared a Master File; or
- A company with related party transactions exceeding RMB 1 billion.
Documentation Threshold for Preparation of Country by Country Report
There are two circumstances in which the CBC Report needs to be prepared and submitted by a Chinese taxpayers when it submits the related party transaction forms (part of its annual tax return):
- The taxpayer is the ultimate holding company of a multinational enterprise (“MNE”) and the annual consolidated revenue of the group in the previous fiscal year exceeds CNY 5.5 billion; or
- The company has been designated by the group to submit the CBC Report.
Submission of Local File, Master File, and CbC Report Required? If so, when?
Deadline: Master File must be prepared within 12 months of the year end of the ultimate holding company. Local File and Special File shall be prepared by 30 June following the tax year in question (e.g. 30 June 2025 for y/e 31 Dec 2024).
If No Submission Required, any Other Deadline?
Contemporaneous documentation shall be in Chinese and shall be submitted to tax authorities within 30 (natural) days of request.
Other Documentation Requirements
Special File must be prepared without regard to thresholds for companies with CSAs and companies exceeding the related-party thin capitalisation debt-equity threshold (5-to-1 for financial institutions and 2-to-1 for all other enterprises).
Special File must be prepared without regard to thresholds for companies with CSAs and companies exceeding the related-party thin capitalisation debt-equity threshold (5-to-1 for financial institutions and 2-to-1 for all other enterprises).
Does TP documentation / Local file Need to be Prepared Contemporaneously with Tax Return Filing (i.e., before filing the return)?
Yes, for penalty avoidance purposes, a taxpayer is considered to have satisfied the documentation requirement if it maintained certain documentation for each year.
Transfer Pricing Specific Returns
Preparation of TP Return Required?
Yes, called related party transaction disclosure forms.
Deadline for TP Return Filing
30th May of the subsequent year.
Key information to be included in the TP Return
Related Party transaction details, pricing policy, background information of related parties involved.
Benchmarking - Local Tax Authority Preferences
Local vs Regional Comparables Set
Local set is preferred and also can accept a Asian regional set.
Single-Year vs Multi-Year Analysis
Multi-year, usually three years weighted average PLI is preferred.
Public vs Private Comparables
Public will be preferred.
Interquartile Range or Full Range
Interquartile range is preferred.
Transaction-Based or Aggregate Approach, or Both
Testing on an aggregate basis is acceptable, whilst it is best to apply transaction-based approach for more specific transaction.
How Often are Benchmarking Sets Renewed (financial update versus full scope BMS preparation)
Normally be renewed on an annual basis and updated the result in the TP local file.
TP Penalties
In Case of Delayed Submission of Documentation
One-off penalty for CNY 2,000 - 10,000.
In case of Income Adjustments in Course of a Tax audit
An extra 5% interest penalty will be levied on top of the LPR rate in a TP audit.
Other Considerations
APA & MAP Availability
Taxpayers may request unilateral, bilateral or multilateral APAs. The APA process is reviewed by the provincial level authority and finalized by the national SAT.
Applicability of Safe Harbour Rules
Not applicable to China.
Critical Transfer Pricing Issues Prevailing in the Jurisdiction, if any
Cross border service recharges, cost allocation, royalty fee, etc.
Criteria/ Guidelines for Transfer Pricing Audit/ Assessments by Tax Authority
Taxpayers with the below characters will be selected as potential TP audit target in China:
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Large volume of related party transaction or with diversified transaction types:
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Consecutive years' loss-making or low profit;
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Profit margin significantly lower than peer entities;
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Incur transactions with counter-parties in tax heaven;
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Did not file the TP documentation compliance requirement.
Relevant Regulations and Rulings with Respect to Thin Capitalisation or Debt Capacity in the Jurisdiction
Caishui 2008 No. 121, Article 46 of China CIT law are the major guideline on thin-capitalisation. The safe harbour ratio is 2:1 for non-financial institutions and 5:1 for financial institution.
There were no new major China TP regulations published for the past two years.
US China trade tensions – the MNC Group affiliates in China were materially impacted, especially those manufacturing entities with material purchases from/sales to the US due to the reciprocal tariff(s) to be imposed. Discussions were made on how to fine tune the supply chain in both the short & long run; the impact and solution will be pending the updates and outcome of all trade discussions.
Year-end adjustments – there were discussions on the China Forex control side on how to appropriately help China taxpayers get compensated for the flow into and outside of China. In the past, the TP mechanism is not fully accepted especially at the local level from Forex/banking perspectives. Now certain pilot programmes were done in first-tier cities to facilitate the capital conversion procedures for such compensation.
There has been no recent new tax regulation/circular published for TP audits in China.
The key focus areas were still on the low-profit/loss-making entities with single functions; also cases challenging whether the market risks shall be borne by the China manufacturing entities for its under-capacity during the COVID;
Overall, the TP audits were enhanced in the past couple of years; similar trends as other normal turnover tax/income tax audits in local practice.
Bilateral APA opportunities are available, however it could be relatively time-consuming. BAPA for traditional related party transaction type like buy-sell transactions are not very welcomed by SAT and will be on the “waiting list”.
Simplified Unilateral APA with competent authority in China is encouraged – it could be relatively quick in conclusion (6-9 months) and also could mitigate the potential TP audit risk in China, however there is no treaty protection and could lead to double taxation at the Group level.
MAP opportunities are available per the local TP regulations and taxpayers could launch such requests under the case of potential double taxation.
Alignment with OECD Guidelines: The China Transfer Pricing regulation are generally aligned with the OECD Guidelines.
Benchmarking Analyses Nuances or Preferences
- It is not specified in the legislation, but SAT accepts regional comparable companies (pure China set is sometimes preferred for TP audit cases).
- It is not specified in the legislation, but SAT generally expects single year results for the tested party to be compared to the multi-year (normally three years) comparable data.
- Interquartile range is generally preferred by SAT.
- It is not specified in the legislation, but the benchmarking studies are normally updated together with the annual TP local file. If the benchmarking study is for planning purpose, it shall be updated every three years in local practice.
Thin Capitalisation Considerations for Intercompany Loans
The China’s thin-capitalization rules are based on the arm’s-length principle, and the safe harbour ratio is 2:1 for non-financial institution and 5:1 for financial institutions.
A special TP file shall be prepared in place to justify the reasonableness of the debt arrangement if the taxpayer’s debt-to-equity ratio exceeding the threshold for the year. If accepted by the local tax bureau, the portion exceeding the safe harbour ratio will still be deductible for income tax purposes.
Transfer Pricing Primary Risk Areas in Jurisdiction
- Single function entities suffering from tax losses (single function manufacturing, trading, contract R&D).
- Having material transactions with low tax rate region/tax heavens.
- Loss making entities during the COVID periods and explanation required on under-capacity, whether such risk shall be beared by the China entity.
- Royalty and Intra-group service recharges.
