Transfer pricing concerns transactions between associated enterprises. Hiring an independent China warehouse does not automatically create a transfer-pricing arrangement. The issue arises when related entities buy goods, provide fulfillment services, share systems, finance stock or charge each other for support.

Begin with the legal entities and the actual transactions, not the group brand. Identify who owns inventory, employs staff, leases the facility, contracts with carriers, receives customer revenue and bears losses. A commercial label such as fulfillment subsidiary does not establish what that entity really does.

Describe the work before selecting a pricing method

The OECD transfer-pricing guidance uses the arm's-length principle for associated-enterprise transactions. Its 2022 Guidelines address comparability and intra-group services. They are guidance, not permission to choose any margin that produces a preferred tax result.

Prepare an operating account of the arrangement. Does the China entity only receive, store and pack goods under instructions, or does it also decide inventory levels, select suppliers and accept commercial risk? Who controls a decision and has the capacity to bear its consequences? Compare contracts with actual conduct and correct any mismatch.

Keep warehouse service remuneration separate from the price of goods transferred between related entities. Also identify financing, software, intellectual-property or management charges instead of burying everything in one per-order fee. Different transactions may require different analysis.

Use comparable evidence carefully

An independent 3PL quotation can be useful evidence, but only after its scope is understood. Compare handling work, storage measurement, order complexity, location, service commitment, minimums and liability. A quote for basic single-item picking is not directly comparable to a related entity that funds inventory and manages returns.

Do not apply a familiar cost-plus percentage without establishing the appropriate method, tested activity and cost base. Decide which costs belong to the service, how shared costs are allocated and whether pass-through charges require different treatment. Document the reasoning and use qualified tax advice for the actual entities and jurisdictions.

As a hypothetical example, dividing warehouse rent between entities by occupied space can be more informative than splitting it equally when their stock footprints differ. That is an operational illustration, not a conclusion that area is always the arm's-length allocation key. The selected key must fit the benefit and evidence in the real arrangement.

Prove that a service was provided and benefited the recipient

For a shared support charge, retain the work performed, receiving entities and business purpose. A broad annual invoice called management service provides little evidence by itself. Keep order-system access records, support requests, project outputs or another proportionate record that shows the activity.

Check for duplicate charges and shareholder activities that do not constitute a service to the charged entity under the applicable rules. China's special tax investigation and adjustment rules address scrutiny of related-party charges and economic substance. A payment to an entity with no relevant functions or activity cannot be defended merely by producing a contract.

Plan China's reporting and documentation separately

The State Taxation Administration's Announcement 42 of 2016 sets requirements concerning related-party reporting and contemporaneous documentation. The applicable obligations depend on the entity and transactions; do not assume every small warehouse needs every document, or that being small removes all reporting duties.

Have the tax team determine the current filing scope, thresholds, exemptions, deadlines and retention requirements. Give it reconciled accounts and transaction records early enough to do that work. An invoice spreadsheet created after a query arrives may not explain how the annual charge was calculated.

Reconcile adjustments with the physical goods records

Review a proposed year-end adjustment across accounting, indirect tax, customs value and contract settlement before booking it. Income-tax transfer pricing and customs valuation ask related but different questions. A tax adjustment does not automatically authorize a change to declared import values or remove the need for customs review.

Keep a bridge from operational volumes and costs to intercompany invoices and financial statements. Record who approved the method, what changed during the year and how exceptions were treated. The objective is a supportable price for actual activity, with consistent evidence across the group, rather than an arbitrary margin selected after the profit result is known.

Sources and verification links

Operational rules can change. Check the linked primary sources and confirm shipment-specific requirements before booking.