December 15, 2022
China releases 2021 annual report on Advance Pricing Arrangements
China's State Taxation Administration (STA) released the 2021 annual APA report (the Report) on 21 November 2022, the 13th edition of the APA report. The Report discusses the implementation procedure of China's APA program, practical developments, and the statistics pertaining to the APA applications concluded from 2005 to 2021.
According to the Report, the STA had signed 125 unilateral APAs and 101 bilateral APAs by the end of 2021, among which 9 unilateral APAs and 11 bilateral APAs were concluded in 2021. The Report indicates that eight APAs in 2021 were signed with Asian countries (regions), representing 72.8% of total bilateral APAs. The other two were signed with North American countries and one with a European country. It continues to be the trend that most APA applicants are engaged in the manufacturing industry. The statistics in the Report also revealed that a majority of the covered transactions related to the transfer of tangible assets, while the other transactions involved the transfer of intangible assets and provision of services.
Despite the slight decrease in the total number of signed APAs in 2021 compared with the prior year, the overall trend indicates a steady growth over the last decade. In July 2021, a simplified procedure for unilateral APAs was rolled out, which significantly shortened the timing of review, negotiation, and conclusion of eligible APA applications. It's expected that the STA will continue to invest in resource needs and improve operating efficiencies for the APA program in the coming years.
China's APA program is an increasingly attractive way to obtain transfer pricing certainty, reduce compliance costs, and avoid or eliminate the risk of double taxation. In addition, the extended benefits of an APA include facilitation of cross-border cash flow resulting from transfer pricing adjustments and resolution for potential customs disputes related to the importation of tangible goods. It's critical that multinationals understand the details of China's APA program and the STA's priority in acceptance of APA requests such that tax controversy matters arising from intercompany transactions can be managed and resolved more effectively.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Services Limited, Hong Kong
Ernst & Young Ernst & Young (China) Advisory Limited
Ernst & Young LLP (United States), China Tax Desk
Ernst & Young LLP (United Kingdom), China Tax Desk, London
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago