Location Specific Advantages -- China

01 October 2011
By Sébastien Gonnet

This article, by NERA Principal Sébastien Gonnet, is the last in a series of three articles from BNA's Transfer Pricing International Journal focusing on the transfer pricing challenges involved with the concept of "location savings." Chinese tax authorities -- notably the State Administration of Taxation (SAT) -- have put a significant emphasis on this concept in recent years. Indeed, the SAT has publicly announced that it would review how the cost advantages arising in China impacts the profitability of Chinese tax payers, and at various occasions pointed to location savings arising in China. Mr. Gonnet assesses what economic methods can be used to properly quantify and apportion the location specific advantages between a Chinese subsidiary and its foreign parent and/or the other parts of the group to which it belongs.