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On 12 April 2012, China’s State Administration of Taxation (SAT) published Chinese and English versions of the China Advance Transfer Pricing Arrangement Annual Report (2010) (the “2010 Report”), marking the second year China has published such a report on the advance pricing arrangement (APA) program to external readership. In this alert, we summarize key points and our observations with regard to the 2010 Report.
The publication of this 2010 Report is in line with the SAT’s objectives of achieving systematic administration of APAs, promoting the use of APAs and increasing the transparency of the APA process.
The 2010 Report, covering the statistical data and analyses for the 2005-2010 period, follows the previous year’s report (the “2009 Report”) in terms of content and framework. The 2010 Report describes the mechanism, procedures, implementation procedures and practical development of China’s unilateral and bilateral APAs. Standardized forms for APA application and communication purposes are presented in appendices to the 2010 Report.
Additions to the 2010 Report include updated statistics, an additional chapter on the protection of taxpayer’s rights (Chapter IV) and a revised section in the chapter dealing with APA procedures (Chapter III) to clarify conditions when APAs may be terminated. Other than that, the wording used in the different sections of the 2010 Report remains the same as in the 2009 Report.
The 2010 Report is here. Unless otherwise noted, we cite all references to the 2010 Report.
Our recommendation
We recommend that companies in general observe the relevant views and policies of China’s tax bureaus with respect to APA procedures and seek professional transfer pricing advice to help mitigate potential tax risks and misunderstanding of APA applications by tax authorities. This could indeed help taxpayers to consider if APA is a useful tool to protect companies from continuous tax risks arising from related party transactions.
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