Price transfer refers to the price agreed upon between the parent company and its subsidiaries, or between subsidiaries within a multinational company, when exporting and purchasing goods, services and technologies. Through price transfer, profits can be transferred from high-tax countries or regions to low-tax countries or regions, thereby achieving tax optimization. However, this behavior may be strictly regulated by the tax authorities of various countries, and improper operation may lead to tax risks. The following are some common methods and relevant precautions for using price transfer to achieve tax optimization in international trade: ### Method - **Take advantage of the difference in tax rates between different countries or regions** - Transfer the profits of companies in high-tax countries to companies in low-tax countries. For example, Company A is in a high-tax country and Company B is in a low-tax country. Company A sells products or provides services to Company B at a lower price, so that profits are concentrated in Company B and the overall tax burden is reduced. - **Control the transaction prices between related companies** - **Adjust the purchase and sale prices of goods**: When the parent company sells goods to its subsidiaries, it increases or decreases the price. For example, a parent company sells products to a subsidiary located in a low-tax region at a price higher than the market price, increasing the subsidiary's costs, reducing the subsidiary's profits, and leaving the profits in the low-tax region where the parent company is located; conversely, if the price is lower than the market price, the profits are transferred to the subsidiary in the low-tax region. - **Adjustment of service costs**: When providing services between related companies, profits are transferred by charging more or less service costs. For example, when a high-tax company provides services to a low-tax company, it charges a lower fee and transfers profits to the low-tax company. - **Adjustment of intangible asset transfer prices**: When an enterprise's patents, trademarks, technologies and other intangible assets are transferred between related companies, the prices are unreasonable. If a high-tax company charges a lower fee when transferring intangible assets to a low-tax company, the profits generated by the low-tax company using the intangible assets will increase, thereby achieving profit transfer. ### Notes - **Comply with the principle of fair trade** - Companies should ensure that the prices of related-party transactions comply with the principle of fair trade between independent companies. The tax authorities will conduct comparative analysis with transactions between independent enterprises (such as the comparable uncontrolled price method, the resale price method, the cost plus method, etc.) to evaluate whether the enterprise's price transfer is reasonable. Price transfer arrangements that do not comply with the arm's length principle may be adjusted by the tax authorities and face risks such as back taxes and fines. - **Complete documentation** - Enterprises need to prepare detailed documentation to prove the rationality of the prices of related-party transactions. These documents should include the business process, pricing policy, and comparable transaction analysis of related-party transactions. When the tax authorities conduct an investigation, they can provide sufficient and reasonable evidence to support that their price transfer arrangements comply with regulations and avoid adverse tax treatment due to failure to provide evidence. - **Pay attention to changes in regulations in various countries** - Tax regulations and regulatory requirements for price transfer in different countries are constantly changing. Enterprises should continue to track the dynamics of regulations in various countries, adjust price transfer strategies in a timely manner, and ensure that they always comply with relevant laws and regulations. For example, some countries have strengthened supervision of related-party transactions in the digital economy. When enterprises conduct relevant price transfer operations, they need to pay special attention to these new regulations.