Transfer Pricing Local File Compliance Requirements for Foreign Entities in China
Local file compliance requires Chinese-language economic documentation finalized by June 30 whenever related-party transaction categories breach statutory thresholds.
Resale Price Method
Meaning
Secondary customs valuation methodologies establish dutiable baselines by working backward from the domestic selling price of imported merchandise. Regulated by Article 20 of the PRC Dutiable Value Regulations and aligned with Article 5 of the WTO Valuation Agreement, the resale price method calculates customs taxable value by subtracting statutory deductions from the unit price at which imported or identical goods are resold in the greatest aggregate quantity to unrelated domestic buyers. Customs officers utilize this deductive approach when transaction values are rejected and primary benchmark comparisons are unavailable.
The method stops applying if imported goods undergo substantial processing or transformation that alters their identity prior to domestic resale.
Deduction Hierarchy
The calculation begins with the verified domestic sales price charged to independent buyers within ninety days of importation. Under the resale price method, customs subtract domestic sales commissions, general expenses, domestic freight, insurance, and national import duties paid upon entry. Subtracting these components isolates the original import baseline value.
Accurate accounting records demonstrating actual profit margins and selling expenses are required to substantiate claimed deductions.
Operational Constraint
Application requires that resale transactions occur between unrelated corporate entities in the open market. Related-party distributor sales cannot establish the baseline unit price. When resales do not occur in sufficient volume or within ninety days, authorities bypass this method and proceed to computed value rules.
Taxpayers must present audited financial statements to justify cost deductions.
Valuation Order
Statutory rules mandate using this deductive process before applying computed value unless the importer specifically requests reversing the sequence. Administrative approval is required to alter the statutory valuation order.
Aligning Related Party Import Prices with Customs Transaction Value Rules
Aligning related party import prices requires establishing prospective formula clauses in supply contracts that satisfy both tax profit margins and customs valuation decrees.