Abstract: In view of transnational enterprises maximizing their overall profit worldwide， a transfer pricing model， which can be applied to Chinese transnational enterprises， is constructed with careful consideration to business income tax， tariff， punishment for transfer pricing once found and specific circumstances of tax administration in China. The findings show that the reported price of transfer pricing can be expressed by a function of comparable normal price， punishment coefficient， tax factors (determined by business income tax and tariff) and tax system of the country where a parent company is located. The rates of business tax and tariff determine the direction and motivation of transfer pricing while the punishment for transfer pricing may reduce the chances of price manipulation. In order to reinforce the regulation of transnational enterprises transfer pricing， some suggestions are raised that the judging criteria for enterprise affiliation should be clarified， the gap between fair value and transfer price should be narrowed through tariff adjustment， and the punishment for transnational enterprises tax evasion by transfer pricing should be stiffened.

Key words: business income tax, tariff, transfer pricing