Tuesday, 10 January 2017

China’s SAT issues new rules to improve advance pricing arrangement administration

China’s State Administration of Taxation (SAT) on 11 October issued new regulations (SAT Bulletin [2016] No. 64,1 or Bulletin 64) to improve the administration of advance pricing arrangements (APAs).
Bulletin 64 is released as the second significant revision to the relevant chapters of the Implementing Measures for Special Tax Adjustments (for Trial Implementation) (SAT Circular Guoshuifa [2009] No. 2 or Circular 2), following the previous issuance of SAT Bulletin [2016] No. 42 (Bulletin 42) in June 2016 on reporting of related-party transactions and contemporaneous documentation. It is another important rule regarding Chinese special tax adjustments. Bulletin
64 applies from 1 December 2016, and the applicable sections concerning APAs in the old regulations (Chapter 6 of Circular 2) will be repealed.
APAs are an effective method to resolve tax disputes in advance and improve taxation certainty. Specifically, bilateral or multilateral APAs may resolve in advance tax disputes among jurisdictions and effectively avoid double taxation. As one of the minimum standards, the OECD’s Action 14 of the base erosion and profit shifting (BEPS) project, i.e., “Making Dispute Resolution Mechanisms More Effective,” has listed “the implementation of bilateral APAs” as one of the best practices to improve the effectiveness and efficiency of mutual agreement procedures (MAPs). Bulletin 64 is another localized rule issued by the Chinese tax authorities to reflect the outcome of the BEPS actions, and represents the Chinese tax authorities’ proactive attitude toward APAs and the emphasis on further normalizing relevant administration mechanisms. Bulletin 64 would also mark a significant improvement of the Chinese tax authorities’ technical capabilities and efficiency of administration in the transfer pricing area.
Bulletin 64 also clarifies the relevant requirements on APA matters, such as the threshold for application, procedures for concluding APAs, the roll-back period, and application materials. The bulletin is expected to have a significant impact on APAs in China.
Source & more info: Deloitte