Transfer Pricing Documentation in China: The Three Tiers, the Thresholds and the Deadlines

7 September 2026 · 8 min read

China operates a three-tier transfer pricing documentation regime that mirrors the OECD model: a local file, a master file, and a country-by-country report. Each tier has its own population of taxpayers and its own timing rule. Most enquiries we receive come from groups that prepared one tier and assumed it covered the others, or that prepared the documentation long after the transactions took place.

Treat the thresholds below as the general position and confirm them against the current rules and with your in-charge tax authority, since local practice varies.

The three tiers

A Chinese entity can be in scope for the local file without filing either of the other two. Scope is tested per entity and per tier, not per group.

Thresholds

The local file threshold is set by transaction value in the year:

• Related party purchases and sales of goods exceeding RMB 200 million.
• Other related party transactions (services, royalties, financing, asset transfers) exceeding RMB 40 million.

Confirm these against the current announcement and your in-charge tax authority before relying on them. The master file and CbC thresholds are set on different bases, including group revenue and the existence of cross-border related party transactions, and should be tested separately for the parent and the Chinese entity.

There is an important carve-out. An entity whose related party transactions are entirely domestic, with no cross-border element, may be relieved from part or all of the documentation. Groups with a purely China-internal structure should test this before commissioning a full local file, and should document the conclusion rather than simply preparing nothing.

Timing

The forms are filed annually as part of the settlement, not as a separate exercise. The local file is not filed routinely; it is prepared, retained, and produced when the tax authority asks, and the notice sets a short deadline. Retention periods are prescribed by the rules; confirm the current period with us. For a December year-end, the local file must be complete by 30 June, in the same window as the audit and the tax settlement.

Why "contemporaneous" matters

The documentation is expected to describe the transactions as they were understood when they were entered into. A functional analysis written two years later, once the results are known, reads differently from one written when the arrangement was set up: descriptors are chosen to fit the outcome, comparables are selected with hindsight, and the pricing policy cannot be reconciled with the intercompany agreements, board minutes and purchase orders from the period.

Tax authorities test this directly. They ask for the pricing policy as it stood in the year, the contracts signed at the time, and evidence that the pricing was applied in the ordinary course. A file reconstructed later rarely satisfies that test, and a reconstructable file is worth more than a polished one. Fix the policy and the agreements first, document them in the year, then update the analysis annually.

What attracts review

Selection is risk-based. The profiles that draw attention are consistent:

• Persistent losses alongside substantial related party sales. A manufacturer selling most of its output to a group distributor on thin or negative margins is the classic case.
• Large outbound service fees and royalties, especially where the local entity already reports losses or the benefit is hard to evidence.
• Thin capitalisation: related party debt materially exceeding equity, or interest rates set without a benchmark.
• Counterparties in low-tax jurisdictions, particularly where the counterparty has limited substance.
• Flat or formula-driven margins that never move with the market.
• Long-outstanding related party balances and interest-free funding between group companies.

None of these is a breach on its own. Each is a signal that the pricing needs to be explained, and the explanation has to pre-exist the enquiry.

Preparing the local file

1. Map the related party transactions by type, counterparty, amount, currency and contractual basis, reconciled to the ledger and to the reporting forms.
2. Confirm the related party perimeter: shareholdings, common control, key management, and state-controlled counterparties the local definition treats differently.
3. Perform the functional and risk analysis: who does what, which assets are used, which risks are controlled and can be financially borne. Interview operational owners.
4. Characterise each transaction and check that the contracts match actual conduct. Risk allocated to a party that cannot control it will not survive scrutiny.
5. Select the method and record why the alternatives were rejected.
6. Run the comparability analysis and keep the search record, screening criteria and accept or reject decisions.
7. Test the result against the actual margin and explain deviations rather than adjusting comparables until the entity falls inside the range.
8. Write the file, obtain internal sign-off, and archive it with source data and the financial statements used.

Documents checklist

1. Group structure chart to the ultimate beneficial owner, with ownership percentages
2. Business licence and articles of association, including amendments
3. Audited financial statements for the year and the two prior years
4. Annual corporate income tax return and the related party reporting forms as filed
5. Intercompany agreements: supply, distribution, services, licence, loan, guarantee, cost sharing
6. Transfer pricing policy document, with its adoption date and evidence of application
7. Pricing schedules, price lists and correspondence showing prices were applied in the year
8. Board and shareholder decisions on the related party arrangements
9. Functional analysis, including process descriptions and interview records
10. Industry and market analysis supporting the entity's positioning and the year's trading conditions
11. Comparability analysis: search record, screening criteria, accepted and rejected comparables
12. Financial models for the method applied and margin calculations for the tested party
13. Intra-group balances, ageing, interest terms and settlement history
14. Advance pricing arrangement or mutual agreement procedure documentation, where one exists

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