This service is a core module of China Compliance Risk Review™, designed to support the overall compliance infrastructure for China operations.
Transfer pricing risks rarely arise from missing documentation — they arise when profit allocation can no longer be credibly defended.
In China, transfer pricing is not merely a documentation exercise. It is a question of whether profits align with business substance and risk allocation.
Many foreign-invested enterprises:
Maintain compliant transfer pricing reports
Meet disclosure requirements
Yet still face material compliance risks when questioned by tax authorities, auditors, or headquarters.
The Related-Party & Transfer Pricing Risk Review focuses on risks that exist beyond documentation.
What Is Transfer Pricing Compliance Risk
Transfer pricing risk does not necessarily mean non-compliance. It often arises when:
Profit outcomes do not align with functions and risks in China
Management or service fees lack sufficient commercial rationale
Pricing methods appear defensible, but results do not
Historical arrangements persist without reassessment
Regulators increasingly focus on profit reasonableness, not paperwork.
Key Areas Covered
1 | Alignment of Functions, Assets, and Risks (FAR)
Whether China’s actual role is understated or overstated
Whether risk allocation reflects operational reality
Whether nominal structures diverge from substance
2 | Reasonableness of Management and Service Fees
Whether services are real and verifiable
Whether charges are commercially supportable
Whether arrangements risk being viewed as profit shifting
3 | Consistency Between Pricing Methods and Profit Outcomes
Whether methods truly reflect the business model
Whether profits consistently fall outside defensible ranges
Whether “reasonable methods” produce unreasonable results
4 | Legacy Arrangements and Accumulated Risk
Whether pricing arrangements have remained unchanged for years
Whether business changes are reflected in pricing logic
Whether risks would be amplified under retrospective review
Typical High-Risk Scenarios
China entities operating with persistent low profits or losses
High management fee ratios with limited business substance
Regulatory focus on profit levels rather than documentation
M&A or restructuring triggering re-examination of pricing logic
In these cases, the issue is not documentation — it is defensibility.
What This Review Does Not Include
This service does not include:
Transfer pricing report preparation or updates
Pricing model design or restructuring
Aggressive tax planning strategies
Audit defense or dispute resolution
This is a risk identification and explainability review, not an execution or planning service.
Deliverables
Transfer pricing risk rating (Low / Medium / High)
Identification of key structural risk drivers
Classification of defensible vs. high-risk arrangements
Executive-level risk summary for HQ
Who This Review Is Designed For
Foreign-invested enterprises with related-party transactions
Groups using management fees or cost-sharing arrangements
Companies with volatile or abnormal profit profiles in China
Organizations preparing for audits, due diligence, or transactions
Position Within China Compliance Risk Review™
This review serves as:
A core module within China Compliance Risk Review™
A critical complement to CIT compliance assessment
A decision-support tool for headquarters and management
Transfer pricing risk is not about documentation — it is about whether profit allocation can withstand scrutiny.
We do not make decisions for you; we only help you clarify facts and risks.
Phone : 400 800 7472
Email : info@rtfcpa.com
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