Foreign tax cheats targeted

New laws requiring foreign-invested entities to submit regular transfer pricing documents are expected to be introduced this year in an effort to crack-down on illegal activities estimated to cost the state about US$37.5 million annually, according to a paper by PricewaterhouseCoopers. Tax authorities suspect many foreign firms avoid China taxes and repatriate profits by buying high and selling low in transactions between their Chinese and foreign subsidiaries. "Very likely, the documentation requirement will be started by the State Administration of Taxation in a matter of months," KPMG partner Steven Tseng Shih-ting told the South China Morning Post. "China wants to make sure multinationals pay their share of tax." Almost 30 countries have adopted this documentation requirement on transfer pricing, including the United States, Germany and Japan, but not Hong Kong. Foreign-invested factories in which all raw materials are imported and all finished goods exported will be exempt from tax.