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The so-called transfer pricing tax audit risk response refers to the reactive measures taken by an enterprise to prevent, control, reduce and avoid the risks associated with the transfer pricing tax audit where it is possible or has been subjected to a transfer pricing tax audit by the tax administration. Specific measures include:
1. Enterprises should be properly informed about their own related transactions and properly aware of transfer pricing tax risks. In addition, enterprises should have a reasonable understanding of the procedures followed by tax administrations for conducting tax audits of transfer pricing, such as key criteria for the selection of auditees and the focus of tax audit concerns。
By properly understanding their transfer pricing risks, enterprises can be better helped to manage transfer pricing risks in their daily work. For example, the regular submission of the annual statement of business transactions by an enterprise would facilitate the preparation and submission of information if it had an objective and comprehensive understanding of its own related transactions. The proper understanding of the work is even more important for enterprises if the tax administration has in the near future detailed filing requirements for the transfer pricing of business-related transactions。
2. Effective prevention of risks associated with tax audits of transfer pricing is generally based on a full understanding by enterprises of the source and status of their transfer pricing risks。
If, by assessing its own risk, an enterprise believes that there is a greater risk of transfer pricing audit for existing related transactions and associated pricing policies, it should consider the following precautions:
(1) prepare information to respond to possible transfer pricing investigation audits in accordance with their own circumstances
(2) timely adjustment of pricing policies to reduce transfer pricing risks for future transactions
(3) recognition of whether transfer pricing tax planning opportunities can be used to effect adjustment of pricing policies
(4) after completion of the corresponding information preparation and pricing policy adjustments, consider whether to use an appointment pricing method to reduce and control transfer pricing risks。
If, by assessing their own risk, an enterprise believes that there is little risk of a transfer pricing tax audit of existing related transactions and associated pricing policies, it may consider the following preventive measures:
(1) regular review of its transfer pricing policy for related transactions to control risk changes
(2) consideration of the need for proactive filing of transfer pricing policies for related transactions with tax administrations
(3) consider whether to use an appointment pricing method to reduce and control transfer pricing risks
(4) consider whether there is an opportunity to use transfer pricing for tax planning。
It is clear that enterprises can adequately and effectively manage and control the associated risks through prior negotiations between tax administrations on transfer pricing. However, before requesting an appointment pricing arrangement from the tax administration, the enterprise should take full account of the corresponding costs and risks, taking into account the actual circumstances of the enterprise。
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