President of the United States Abraham Lincoln once said, “Give me six hours to chop down a tree, and I will spend the first four sharpening the axe”. Mr. Abraham Lincoln, who is the sixteenth president of the United States, is among the four greatest presidents of the United States. He was the proclamation to end slavery in the United States, and urged Congress to add the Thirteenth Amendment to the U.S. Constitution, federally outlawing slavery. His work freed more than four million slaves in the United States, and spread all over the world. His image is printed on the US five dollar bill.

Sure, when doing anything to get good results, it takes preparation. In order to have a secure preparation, there must be understanding. The following five knowledge contents are required to prepare for the transfer price inspection, also known as the transfer pricing:

First, the concept of tax collection in transfer pricing is to collect correctly, fully, timely and appropriately. Other taxes are to collect correctly, fully, timely, and accurate. In the tax law, the appropriate tax collection in transfer pricing is shown to allow for similarity comparison, allowing the use of mathematical functions of computational statistical probabilities, allowing enterprises and tax authorities to sign an agreement to pay tax.

For example, in the transfer pricing of the enterprise with seven objects for comparison, the tax collector agrees that four objects are suitable. Tax collectors have five comparable objects, the enterprise agrees three objects are suitable. So that, the solution that needs to be discussed and negotiated is to choose the objects, which the two sides consider suitable to calculate the tax results.

Second, according to tax administration regulations, if enterprises had related-party transactions, the enterprises would be to declare and make transfer pricing. At the same time, enterprises have to provide documents and others when requested by tax authorities. That means, enterprises have to prove themselves in their association that there is no transfer pricing, if there is transfer pricing, the enterprises adjust tax obligations. For other taxes, the tax authorities shall check, review and look for errors in accounting documents to collect tax. Therefore, understanding the content of the transfer pricing, carefully preparing the related party transaction, and making tax declarations are indispensable tasks.

Third, the enterprise will be assessed tax in transfer pricing if the enterprise omits or fails to comply with the following provisions:

• Non-compliance on declaration, or incomplete declaration of affiliate transactions.
• Do not present associated transaction records upon request from tax authorities. Enterprises provide dossiers for no more than thirty days and can be extended once for fifteen days. A total of forty-five working days, counting from the date of request by the tax authorities, is the maximum time the law allows businesses to provide documents. The tax law also stipulates that transfer pricing must be prepared before the date of annual corporate income tax declaration and finalization. Therefore, if enterprises apply for an extension, they need objective reasons. The reasons such as not making documents, forgetting to make documents, enterprises are not allowed to extend their presentation. This leads to enterprises losing the right to self-identify and being taxed.

Fourth, enterprises will be taxed when using dishonest, illegal, and non-originating information. In case taxpayer data is accounting data, a soft copy must be provided to the tax authority in the spreadsheet form.

Fifth, the tax law clearly states in the related party transactions that the tax authority is responsible for creating conditions for enterprises to demonstrate and explain transfer pricing. It can be understood that the tax authorities do not unilaterally impose or deny unjustifiably the databases in the dossiers or documents provided by enterprises.

In summary, the above five contents are important for preparation in the transfer pricing inspection.

• Tax payable is the accordant amount.
• The first job that enterprises need to do is to self-declare and prove.
• Transfer pricing documents are the most important document in the inspection.
• The information provided by the enterprise must be of legal origin.
• Enterprises have the right to prove, explain and negotiate exchanges.