TP & CVTP & CV

China CustomsChina Customs

2014 WCO REVENUE 2014 WCO REVENUE CONFERENCECONFERENCE

MNEs in China MNEs in China

• China has become the world second China has become the world second largest country to absorb foreign largest country to absorb foreign investmentinvestment

• 2013, Shanghai Customs has 15 large 2013, Shanghai Customs has 15 large MNEs affiliated associations among its MNEs affiliated associations among its top 20 tax-payers. With total tax revenue top 20 tax-payers. With total tax revenue accounting for 23% of total amount of accounting for 23% of total amount of Shanghai Customs.Shanghai Customs.

Transfer PricingTransfer Pricing Challenges for Customs Challenges for Customs ValuationValuation

• TCCV and customs authorities focus on TPTCCV and customs authorities focus on TP

• China Customs has not only accumulated rich experience, but also facing challenges in respect of Customs control on transfer pricingChina Customs has not only accumulated rich experience, but also facing challenges in respect of Customs control on transfer pricing

NNo practical guidance as to o practical guidance as to transfer pricing for Customs transfer pricing for Customs purposespurposes

• Difficult to formulate a unified practical Difficult to formulate a unified practical guidanceguidance

• Circumstances surrounding the sale & Circumstances surrounding the sale & Commentary 23.1 can not meet the need Commentary 23.1 can not meet the need of Customs authoritiesof Customs authorities

Significant divergences between Significant divergences between transfer pricing and Customs transfer pricing and Customs valuationvaluation

• A lot in common, but significant divergence A lot in common, but significant divergence in their application.in their application.

• TNMM doesnTNMM doesn’’t focus on the reasonableness t focus on the reasonableness of expensesof expenses

• A low imported price with a high expenseA low imported price with a high expense

Inappropriate transfer pricing policies Inappropriate transfer pricing policies are used to evade customs dutyare used to evade customs duty

• Transfer pricing policy with lower tax burdenTransfer pricing policy with lower tax burden

• Difference between TP practice and TP policyDifference between TP practice and TP policy

• Failure to declare subsequent transfer pricing Failure to declare subsequent transfer pricing adjustmentsadjustments

• Manipulation of the arm’s length rangeManipulation of the arm’s length range

Great Progress of TP studyGreat Progress of TP study

• WCO-OECD joint handsWCO-OECD joint hands

• Commentary 23.1Commentary 23.1

• Case Study on TNMM by USACase Study on TNMM by USA

• Case Study on RPM by ChinaCase Study on RPM by China

Further the studies on TPFurther the studies on TP

• Change the research findings into tools and Change the research findings into tools and instruments as guidanceinstruments as guidance

• Promote the amendment and updating of Promote the amendment and updating of WTO Valuation Agreement when appropriateWTO Valuation Agreement when appropriate

• Improve mechanism of transfer pricing auditImprove mechanism of transfer pricing audit - - registration regime of transfer pricingregistration regime of transfer pricing

-declaration of subsequent TP adjustments-declaration of subsequent TP adjustments

Enhance coordination Enhance coordination between tax and Customs between tax and Customs authoritiesauthorities• A unified management of transfer pricing A unified management of transfer pricing

and joint audits are expected.and joint audits are expected.

• China Customs plans to carry out a audit China Customs plans to carry out a audit of transfer pricing on selected industries of transfer pricing on selected industries and enterprises later this year. Sharing and enterprises later this year. Sharing information with China tax authoritiesinformation with China tax authorities

Encourage stronger links Encourage stronger links and cooperation with MNEsand cooperation with MNEs

• Cooperation between Customs and Cooperation between Customs and business community is a useful basis for business community is a useful basis for creating a win-win situation in respect of creating a win-win situation in respect of company compliance and trade facilitation.company compliance and trade facilitation.

• Improve clearance efficiency and enhance Improve clearance efficiency and enhance compliance.compliance.

THANK YOU