Transfer Pricing in China: Location Savings and Marketing Intangibles

Beijing, China
03 November 2010
Hosted By: the International Bureau of Fiscal Documentation (IMFD) in China

The International Bureau of Fiscal Documentation hosted its first Tax Lecture Series in Beijing on 3 November 2010 that drew a range of representatives from China's State Administration of Taxation, universities, state-owned enterprises, foreign multinational companies, and law firms. NERA Principal Sébastien Gonnet delivered a presentation that provided a theoretical framework for addressing location savings (including market premium) and economic tools to identify, quantify, and apportion such advantages to operations in China. Mr. Gonnet described the circumstances in which a multinational enterprise may benefit from Location Specific Advantages (LSAs) in certain locations and, in case LSAs are identified, whether LSAs convert into location-specific rents (extra profits). Finally, Mr. Gonnet explained that the question of which entity (between the Parent -- or Principal -- and the local Subsidiary) is entitled to location rents is heavily dependent on the availability of the LSAs and the degree of competition in the market. During the panel discussion, Mr. Gonnet insisted that only an in-depth analysis of the facts and circumstances of the case (industry and company analyses), as well as a thorough economic analysis, enables this complex subject to be addressed properly given the lack of regulatory guidance.

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