Research On Location Specific Advantages Of Transfer Pricing

With the increasingly deepening of economic globalization, the cooperation between different countries and regions is widely developed. Not only the production factors but also the markets of different regions are becoming the targets of multinational corporations. So far as entering the new century, the newly emerging countries led by the BRICS countries have become the new engine of development of the world, the lower cost of production factors as well as the giant potential of market have attracted mounting multinational companies investing directly in the developing countries. However, some companies employ intricate methods of tax avoidance to avoid local tax responsibility, which has been noted by local tax administration departments of some developing countries. As a result, these countries start to pay more attention on the topic of Local Specific Advantages. For instance, Chinese States Administration of Taxes has brought up the concepts of Cost Saving and Market Premium, these are not deriving from China, they are two sides of the concept of Location Specific Advantages, which is much more wider than Cost Saving and Market Premium, this thesis will discuss and compare the connotations and differences of these concepts in the second chapter.The first chapter has summarized the domestic and foreign literature about Location Saving(the start point of Local Specific Advantages), and in the third chapter this thesis will discuss the three significant principles when dealing with the relative problems of Location Specific Advantages. Firstly, estimate the existence of Location Specific Advantages; secondly, estimate the existence of extra profits deriving from Location Specific Advantages; at last, if the extra profits deriving from Location Specific Advantages do exist, one should allocate the Location Rents appropriately under fully considered the conditions of local economic environment.In the fourth chapter, this thesis will analyze two famous cases related to AMERICAN COMPAQ COMPUTER CORP and AMERICAN SUNDSTRAND CORP. We will see how different judgments are made by the court and the reasons why.In the last part of the thesis, the specific characters of China have been taken into consideration. While Chinese has lower costs of production factors and enormous market potential, Chinese infrastructures are still not well compared with its rapidly growing GDP, the social institutions are still waiting for perfecting, the extent of sophisticated business and the abilities of innovation are still in a low level. Therefore, one should take comprehended factors of local economic environment into consideration when dealing Location Specific Advantages of transfer pricing. In the last chapter, the thesis has provided some advise as well and considered that the BPAP/MAPA may be an effective way to deal with conflicts related to the Location Specific Advantages of transfer pricing.