The State Administration of Taxation (“SAT”) issued the Chinese first annual advance pricing report (“APA”) titled “China Advance Pricing Arrangement Annual Report (2009) (“APA Report) on December 30, 2010. The groundbreaking report provides the official statistical survey on both in-progress and completed Advance Pricing Arrangements (APAs) for the period from January 1, 2005 to December 31, 2009 and reaffirm the SAT’s focus on transfer pricing issues, in particular, reinforces its commitment to the APA program. This report aims to provide a useful guidance to taxpayers, especially MNEs investing in China as well as Chinese enterprises with overseas investments that intend to adopt an APA. The information and insights provided by the report increases the transparency of the APA administration in China which is welcomed by the taxpayers.
The APA Report mainly include the following subjects:
Introduction to China’s APA program;
A history of the APA program’s development;
The implementation procedures and related forms;
Statistics on in-progress and completed APA cases; and
Appendices of forms used in the APA application process.
APA procedures and process
Apart from the forms and procedural guidance previously released, the APA Report also contains new content including the statistics as well as a process flowchart detailing how an APA moves through the six phases, namely: Pre-filing meeting; Formal application; Examination and evaluation; Negotiation; Agreement and signing; Execution and monitoring.
The APA Report provides a survey on the APA development in China since 2005 when the APA was formally incorporated under the corporate income tax law in China till the recent year of 2009.
The data released by the Report demonstrates a few key trends for the APA program in China as follows: (1) 53 APAs in total has been signed during 2005 to 2009, among which the unilateral APA accounts for more than 77%. Nevertheless, the bilateral APA is growing rapidly and surpasses the number of the signed unilateral APA for the first time in 2009. (2) As the end of 2009, no multilateral APA case has been concluded yet. (3) The majority of the APAs concluded is related to purchase and sales of tangible assets as of the end of 2009. However, the application of APA involving intangible assets and services is increasing continuously and the number application in process has exceeded the application related to tangible transactions. (4) The TNMM (transaction net margin method) is the most popular method adopted which accounts for 60% of the signed APA cases. Cost-plus is the second popular method whereby around 26% cases adopt it. (5) The processing times for unilateral APA and bilateral APA application are becoming more expedited.