How to Align the Value Creation Factors on the Rubik’s Cube: Techniques to Excel in Value Chain Analysis

; posted on
February 7th, 2018

China has made significant contributions in driving forward the roll-out of the G20/OECD BEPS actions. In the last two years, with the release of Bulletin 42 on transfer pricing documentation, Bulletin 64 (1) on advance pricing arrangements (2), and Bulletin 6 on further developing its transfer pricing regime (3) by the State Administration of Taxation (SAT), China has entered into a new era for combating base erosion and profit shifting through transfer pricing.

Value chain analysis (VCA) has become a focal point with respect to transfer pricing compliance for many multinational enterprises in China. In fact, Bulletin 42 requires multinationals to perform a comprehensive value-chain analysis and include it in the transfer pricing local file documentation as of January 1, 2016.

Many MNEs would like to know how to conduct a proper VCA. What are the techniques MNEs need to know and how do they use them? Performing a VCA is like solving a Rubik’s cube puzzle, where you need to match a couple of different colors and sides simultaneously.


Our experience is that the value created by group entities of a multinational in the global value chain are embedded in various operational and technical processes. During the process of conducting a VCA, one should take full account of each factor that drives value creation. Only considering one side without a view of the whole can create disruptions in other sides and corrupt the overall outcomes.

In the post- BEPS environment, a multinational company’s transfer pricing documents must be consistent with its business model and, therefore, each value creation driver must align with the actual profit allocation. Otherwise, tax authorities can identify tax/transfer pricing leakages from the different angles of the Rubik’s cube.


(1) Bulletin 42 was issued by the SAT on June 30, 2016, and it is mainly focused on filing of related-party transactions and administration of contemporaneous transfer pricing documentation.
(2) Bulletin 64 was issued by the SAT on October 11, 2016, and it is mainly focused on refining the administration of advanced
pricing arrangements.
(3) Bulletin 6, issued by the SAT on March 7, 2017, is mainly fo- cused on further developing China’s transfer pricing regime.

Please feel free to download our article regarding VCA techniques, published on Bloomberg Tax.

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Please feel free to download our article written in Chinese regarding VCA techniques published on China Taxation News on February 13, 2018 (China Taxation News is the journal that often publishes key decisions from the China State Administration of Taxation) .

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*Steef Huibregtse is managing partner and chief executive officer with TPA Global, and Ying van Galen-Wang is a director with the firm. Both are based in Amsterdam, The Netherlands.

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