Location saving on contract R&D arrangements
01 July 2012
Location saving is a hot issue in developing countries. Yin Chao, who speacialises in transfer pricing at Siemens in China, and Yin Shuping, who is an associate professor at Guangdong Polytechnique Normal University, explain China’s perspective on the transfer pricing aspects of location saving on contract R&D.
| Diagram 1: Contract R&D arrangement |
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In February 2010, the State Administration of Taxation (SAT) issued
circular number 84 stating that "with China being one of the countries
whose market is emerging, there are unique competitive advantages as
compared to the developed countries. The unique competitive advantages
include the continuously increasing purchasing power, cheap land and
labor, and etc. …; tax authorities should …, to strengthen study on
location saving, marketing intangible assets and other issues in favor
of developing countries…".
In the same circular, SAT mentioned that "through these new ideas
successfully application in the cases, to collect an overdue tax 5.44
hundred million in 2009 by only bilateral negotiation". In practice, we
are also aware of several location saving related cases in China.
Definition of location saving
There are different expressions of location saving.
Pursuant to article 9.148 of the OECD transfer pricing guidelines:
"Location savings can be derived...
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