An arm's length pricing is determined by taking into consideration how and under what terms unrelated parties would structure their transaction under given circumstances. Usually, a survey is taken of how similarly situated companies determine their prices for sales to unrelated parties and the pricing structure between related parties should be structured similarly.

In China, in principle, the tax authorities will judge it based on the business substance, the industry benchmark and the company's global TP policy. It will be determined whether it is an arm's length on the royalty charged, etc. Hopefully my answer will be helpful to your inquiries. Very sorry to the delay since I have not been accessing this due to the local reason. Paul

P.S. I can be reached at paul.qu@cn.pwc.com