Company A, incorporated in the PRC, manufactures and sells semiconductors exclusively to its related company, Company B, located in South Korea. In order to justify its profit margin earned on the related company sale from Company A to Company B, Company A produces comparable transactions undertaken by semiconductor manufacturers located in the US and Taiwan to the State Taxation Administration ("STA"), i.e. the PRC tax authority. 

Required:

Advise Company A on the potential challenges that may be raised by the STA.

Answer rating: 100% (QA)

Company As transfer pricing arrangement where it justifies its profit margin based on comparable transactions with semiconductor manufacturers in the ... View the full answer