Ownership Structure Of Overseas Subsidiary And Transfer Price

In the past 20 years, along with the development and openness of China, more and more multinational comporations step into China. According to statistics, more than 400 Top-500 MNCs have established their subsidiaries and agencies in mainland, China. Wholly-owned foreign enterprises have been the main investment mode instead of Joint-venture which was used to be the main one in last decade, and besides, the proportion of wholly-owned foreign enterprises is increasing. The trend of increasing proportion forces MNCs to change their transfer pricing strategy. Furthermore, the different transfer price strategy must have influence on trade and revenue of China.Alireza Dorestani model (2002) offered a new idea in study of transfer price in related enterprises. It avoids discussing product which should be important as price in traditional transfer price model. And it substitutes the term of expected maximum profit for the term of maximum profit. My model insists on the basic structure and hypothesis of Alireza Dorestani model and differentiates two cases, upstream firm in host country and downstream firm in host country. Among the variables I introduce a new one, ownership structure coefficient By mathematical analysis, I draw a conclusion that the transfer price is direct proportion to the foreign capital share proportion in upstream firm enterprise and inverse proportion in downstream firm.Because of the increasing proportion of wholly-owned foreign enterprises in China, net trade term and tariff have an improving and increasing trend. Moreover, under integrated income tax system, the shrinking trend of tax revenue is restrained as the above reasoa...