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Q：
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What transfer pricing methods can tax authorities use when analyzing and evaluating related transactions of enterprises?
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A：
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Tax authorities should choose reasonable transfer pricing methods on the basis of comparability analysis to analyze and evaluate related transactions of enterprises. Transfer pricing methods include comparable uncontrolled price method, resale price method, cost plus method, transaction net profit method, profit division method and other methods that conform to the principle of independent transaction.
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Q：
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How is fair transaction price calculated in cost plus?
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A：
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Fair transaction price = reasonable cost incurred by connected transaction × (1+ comparable unconnected transaction cost markup rate).
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Q：
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How to calculate the mark-up rate of comparable unconnected transaction costs?
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A：
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Mark-up rate of comparable unaffiliated transaction cost = Gross profit of comparable unaffiliated transaction/comparable unaffiliated transaction cost ×100%.
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Q：
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How should comparability be analysed?
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A：
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The comparability analysis of the cost plus method shall, in particular, examine the functions performed by the enterprise, the risks undertaken, the assets used and the differences in the terms of the contract, as well as other factors affecting the cost plus rate, including manufacturing, processing, installation and test functions, market and exchange risks, and the value and service life of the machinery and equipment. Use and value of intangible assets, business experience, accounting treatment, production and management efficiency, etc.
Where there are significant differences between connected transactions and non-connected transactions in the above aspects, reasonable adjustments should be made to the impact of such differences on the cost plus rate, and other reasonable transfer pricing methods should be selected if reasonable adjustments cannot be made.
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Q：
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Which related party transactions do cost mark-ups usually apply to?
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A：
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The cost plus method is generally applicable to the transfer of the right to use or ownership of tangible assets, financial financing, labor transactions and other related transactions.
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FAQ
