State Administration of Taxation released APA-Report 2011

By Larsen Lüngen from ECOVIS Cologne and Krefeld

An advanced pricing agreement (APA) refers to a negotiation between an enterprise or taxpayer and tax authorities to reach an agreement with respect to transfer pricing methods. It is to be distinguished between unilateral (one country) and bilateral (several countries) APAs. In December 2012 the Chinese State Administration of Taxation released statistical data regarding the APA practice in China, the third update since 2009.

The report refers to the legal basis of advanced pricing agreements, the competent SAT offices in the respective provinces as well as statistical information of APA practice in China.

APA is the most important measure for preventing abuse of tax constructions regarding tax treatments of cross-border business relationships says Wang Li, deputy commissioner of the SAT. With respect to intensive business relationships with China APA negotiations should be taken into consideration, especially as the processing time of unilateral and bilateral APAs is less than a year in more than half the cases, as mentioned in the latest APA report.

The percentage of APA with European enterprises is only 20% of the total APA cases. As a consequence the State Administration of Taxation might enforce the implementation of APA processes with European enterprises. The trade sector with purchase and sale of goods leads the statistics with 64% of the total advanced pricing agreements with China.