Transfer Pricing Analysis Of The Separation Of Manufacturing And Sales Functions By T Automobile Company

Transfer pricing refers to the price that is determined by two related parties when they conduct related party transactions between them. Transfer pricing will directly affect the operating profit of enterprise, and therefore affecting the amount of income tax the enterprise need to pay. Enterprise has the incentive to use transfer pricing to minimize its tax burden. Also, more and more enterprises have been using transfer pricing for tax planning purposes. As such, transfer pricing issues have been drawing more and more attention from enterprises and tax authorities in the recent years.This report, by means of case study, picks up an actual case in practice,i.e., the separation of manufacturing and sales functions by T Automobile Company for analyzing. This report starts with an overview of current international and Chinese researches and regulations regarding how to apply the arm's length principle to solve transfer pricing issues, followed bydetailed industry analysis, business model analysis and value chain analysis are carried out. Then, this report selects the most appropriate transfer pricing method, i.e., transactional net margin method, to analyze the transfer pricing issue involved in this case. Based on the application of transactional net margin method, this report derives the arm's length price at which T Automobile Company should sell the products to T Automobile Sales Company. This report also analyzes the corresponding financial impact.Finally, this report provides some advice regarding the practical application of the separation of manufacturing and sales functions.By analyzing the transfer pricing issues involved in the separation of manufacturing and sales functions by T Automobile Company, this report aims at provides some practical advice for enterprises in the automobile as well as other industries that contemplate to implement similar business model as T Automobile Company. In this regard, the advice provided in this report could be taken as a practical reference.