APA & MAP COUNTRY GUIDE 2018 - CHINA - New paths ahead for international tax Controversy - DLA Piper
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APA & MAP COUNTRY GUIDE 2018 – CHINA New paths ahead for international tax Controversy
THE PEOPLE’S REPUBLIC OF CHINA (‘PRC’)
APA PROGRAM
KEY FEATURES
Competent The State Administration of Taxation (‘SAT’); and the relevant
authority local tax authority (‘Tax authorities’)
Relevant Public Notice on Matters Regarding Enhancing the Administration of
provisions Advance Pricing Arrangements (Public Notice of the SAT [2016] 64).
Types of APAs Unilateral, bilateral, and multilateral APAs are available.
available
Acceptance An APA generally applies to enterprises with the annual inter-
criteria company transactions over RMB 40m (approx. USD 6.25m) for each
of the previous three years.
The Tax authorities will prioritise Taxpayers meeting one or some of
the following criteria:
■■ the Taxpayer has fully complied with the PRC inter-company
transaction disclosure and contemporaneous documentation
requirements, and the information disclosed is reasonably
satisfactory;
■■ the Taxpayer has an A-level tax credit rating;
■■ the Taxpayer was subject to a transfer pricing audit, and the audit
has been closed;
■■ the Taxpayer has an existing APA it intends to renew, and the
facts and operational environment in the existing APA have not
and will not foreseeably change;
■■ the application materials, particularly the analysis on the value
chain and location-specific advantages, are complete and
thorough, and the transfer pricing and calculation methods are
reasonable;
■■ the Taxpayer cooperates with the Tax authorities for negotiation
and conclusion of an APA; and
■■ in the case of a bilateral or multilateral APA applications, the
relevant foreign tax authority have displayed a strong intention
and a high degree of attention to the intended APA.
02 | APA & MAP Country Guide 2018 – China
THE PEOPLE’S REPUBLIC OF CHINA (‘PRC’) (cont’d)
KEY FEATURES (cont’d)
Key timing An APA will commence from the year during which the Tax
requests, authorities issue a ‘Notice of Tax Related Issues’ informing the
deadlines Taxpayer that they may submit a letter of intent. The Taxpayer
may submit a formal APA application upon receiving a Notice of
Tax Related Issues from the Tax authorities that indicates their
consent to receiving such a submission.
APA term limits There is a five-year maximum term for an APA.
Filing fee There is no filing fee.
Rollback Rollback is available. The retrospective period can extend to a
availability maximum of ten prior years if the related party transactions are
the same or similar to those covered by the APA.
Collateral issues Administrative issues that are relevant to and may affect the
outcome of an APA may be addressed and resolved at the pre-filing
stage with the Tax authorities. Applications from Taxpayers under
investigation by the Tax authorities for tax issues will be refused.
PRE-FILING REQUIREMENTS
Overview The Taxpayer must make a written request to the Tax authorities for
a pre-filing meeting. The pre-filing meeting will require the following
information and documentation:
■■ duration of the proposed APA;
■■ related parties involved and related party transaction to be
covered;
■■ organisational and management structure of the enterprise and
group it belongs to;
■■ business operations and transfer pricing documentation of the
enterprise for the most recent three to five years;
■■ allocation of functions and risks among related parties covered
under the APA, including the parties involved, personnel,
expenses and assets;
■■ market conditions, including industry development trends and
competitive environment;
■■ any location specific advantages including location savings and
market premiums;
www.dlapiper.com | 03
THE PEOPLE’S REPUBLIC OF CHINA (‘PRC’) (cont’d)
PRE-FILING REQUIREMENTS (cont’d)
Overview (cont’d) ■■ whether the proposed APA is intended to be retrospective in
application;
■■ in the case of a bilateral or multilateral APA applications,
applications submitted for APAs with relevant foreign tax
authorities;
■■ in the case of bilateral or multilateral APA applications, business
operations and inter-company transaction of the related party
involved for the most recent three to five years; and
■■ in the case of a bilateral or multilateral APA applications, any
international double taxation issues and relevant explanations.
If an agreement is reached during the pre-filing meeting, the Taxpayer
will be required to submit a ‘Letter of Intent for Negotiation and
Signing of an Advance Pricing Arrangement’ to the Tax authorities
and submit the APA application proposal including the above
information and documentation, as well as:
■■ the proposed TP method and calculation method, functional and
risk analysis, comparability analysis and assumptions used for
supporting such methods;
■■ value chain or supply chain analysis;
■■ annual information on business scale, result forecasts and plans for
the proposed term of APA; and
■■ relevant domestic or international laws and rules in the industry
that have an impact on the APA.
A declaration that none of the following circumstances exists:
■■ the Taxpayer is now under any tax related investigation;
■■ the Taxpayer is in compliance with related-party dealings
disclosure and contemporaneous transfer pricing documentation
requirements; and
■■ the Taxpayer and Tax authorities were able to reach an
agreement during pre-file meeting in relation to the APA
application.
Anonymous pre- Anonymous pre-filing is not available.
filing availability
04 | APA & MAP Country Guide 2018 – China
THE PEOPLE’S REPUBLIC OF CHINA (‘PRC’) (cont’d)
APPLICATION REQUIREMENTS
Content of If the Tax authorities determine the APA application conforms
application to the arm’s length principle, a ‘Notice of Tax Related Issues’
consenting to the Taxpayer’s submission of a formal APA
application will be issued. The Taxpayer must then submit a
‘Formal Application Letter for an Advance Pricing Arrangement’.
Language The documentation should be submitted in Mandarin Chinese.
SME provisions No specific guidance.
OTHER PROCEDURAL CONSIDERATIONS
General Taxpayers are required to coordinate with the Tax authorities
and make any adjustments to the proposed TP method during the
stage of analysis and evaluation. A formal application will not be
accepted until an agreement has been reached.
Taxpayers applying for a unilateral APA must submit all above
mentioned information and documentation to their local tax
authority. Taxpayers applying for bilateral or multilateral APAs
must submit all above mentioned information and documentation
to both the State Administration of Taxation as well as the
relevant local tax authority. For APAs involving two or more
provinces, autonomous regions, municipalities or cities with
independent planning, or involve both the state and local tax
bureaux, the SAT shall be the designated Tax authority.
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THE PEOPLE’S REPUBLIC OF CHINA (‘PRC’) (cont’d)
OTHER PROCEDURAL CONSIDERATIONS (cont’d)
Monitoring & An Annual Compliance Report (‘ACR’) is required to be filed with
compliance the Tax authorities within six months following each tax year end.
The ACR must include:
■■ documentation of the relevant business operations and
implementation of the APA;
■■ any need to amend or terminate the APA; and
■■ any unsettled issues or adverse issues expected to occur.
The Tax authorities will monitor the Taxpayer’s implementation
of the APA on an annual basis, with major areas of monitoring
to include compliance with the provisions and requirements
of the APA, whether the information provided in the ACR
reflects the actual operations of the Taxpayer, and whether the
assumptions in the APA are still valid.
Renewal Applications for the renewal of APAs are required to be lodged
procedure within 90 days prior to the expiration of the existing APA.
The Taxpayer must submit an ‘Advance Pricing Arrangement
Renewal Application’; a report specifying the implementation
status of the of the existing APA; an explanation of any substantial
changes to the facts or operational environment in the existing
APA; and a forecast for the years covered by the renewal.
06 | APA & MAP Country Guide 2018 – China
THE PEOPLE’S REPUBLIC OF CHINA (‘PRC’) (cont’d)
MAP PROGRAM
KEY FEATURES
Competent The State Administration of Taxation (‘SAT’)
authority
Relevant Public Notice on Issuing the Administrative Measures for Special
provisions Tax Adjustment and Investigation and Mutual Agreement
Procedures (Public Notice of the SAT [2017] No. 6)
Acceptance Taxpayers may request a MAP if taxation has or is likely to occur
criteria that is not in accordance with the provisions of a DTT to which
China is signatory. Specifically, the SAT provides the following
conditions for accepting an application:
■■ the application is made within the time period specified in
the DTT;
■■ the subject matter of the application is a breach of DTT
provision(s) that has already occurred or will likely occur;
■■ the fact and evidence provided by the applicant can prove
or cannot reasonably eliminate the suspicion that the treaty
partner country has breached a DTT provision; and
■■ the matter subject to the application is not covered by
article 19 of the applicable DTT.
Key timing Application for a MAP must be made within a reasonable period
requests, of time from the first notification of the action resulting in
deadlines taxation not in accordance with the provisions of the DTT. If the
application is submitted in person, the application date is deemed
to be the submission date; if the application is submitted by
email, the application date is the date that the SAT receives the
application.
www.dlapiper.com | 07THE PEOPLE’S REPUBLIC OF CHINA (‘PRC’) (cont’d)
APPLICATION REQUIREMENTS
Content of Taxpayers must submit an ‘Application for Initiating Mutual
application Agreement Procedures Concerning Special Tax Adjustment’ and
relevant information in writing to the SAT.
Language Materials must be submitted in both Mandarin Chinese and
English.
OTHER PROCEDURAL CONSIDERATIONS
Interaction While the litigation of issues that would generally be covered
with domestic under MAP are not frequently litigated in China, MAP requests
proceedings may coincide with the litigation under the domestic procedures
available.
Arbitration No specific guidance.
STATISTICS
APA There were 194 APA applications at the application or signing
stage at the end of 2016. 14 APAs were signed during 2016.
The PRC has been negotiating APAs since the mid-1990s, with
the first unilateral and bilateral APAs signed in 1998 and 2005,
respectively.
MAP China had a total of 108 active MAP applications as of
31 December 2016. 78 MAP cases were negotiated during 2016.
The average time needed to close MAP cases is 26 months for
transfer pricing cases, and 16 months for other cases.
DOUBLE TAXATION TREATY NETWORK
The following treaties include MAP provisions which are the basis for bilateral and
multilateral APA negotiations:
Albania Azerbaijan Belgium(IV)
Algeria Bahrain Bosnia Herzegovina
Armenia Bangladesh Brazil
Australia Barbados Brunei
Austria Belarus Bulgaria
08 | APA & MAP Country Guide 2018 – ChinaTHE PEOPLE’S REPUBLIC OF CHINA (‘PRC’) (cont’d)
Cambodia Hungary Macedonia Poland Thailand
Canada Iceland Malaysia Portugal (VI)
Trinidad and
Tobago
Chile (IV)
India Malta Qatar
Tunisia
Croatia Indonesia Mauritius Romania(IV)
Turkey
Cuba Iran Mexico Russia(IV)
Turkmenistan
Cyprus Ireland Moldova Saudi Arabia
Ukraine
Czech Republic Israel Mongolia Serbia
United Arab
Denmark(IV) Italy Montenegro Seychelles
Emirates
Ecuador(IV) Jamaica Morocco Singapore
United
Egypt Japan (VI)
Nepal Slovenia Kingdom(IV)
Estonia Kazakhstan Netherlands South Africa United States
Ethiopia (IV)
Korea (Republic New Zealand Spain Uzbekistan
of)
Finland Nigeria Sri Lanka Venezuela
Kuwait
France (IV)
Norway Sudan Vietnam
Kyrgyzstan
Georgia Oman Sweden Zambia
Laos
Germany Pakistan Switzerland(IV) Zimbabwe(IV)
Latvia
Greece Papua New Syria
Lithuania Guinea
Hong Kong(IV) Tajikistan
Luxembourg(VI) Philippines
NOTES
I denotes treaties with MAP arbitration provisions.
II denotes treaties with the USSR that remain applicable until a separate tax treaty is concluded.
III denotes treaties between the countries’ representative office in Taipei and the Taipei Economic and
Cultural Office in the relevant country.
IV denotes treaties that became effective within the last five years.
V denotes treaties that are awaiting ratification.
VI denotes MAP provisions identical to para 3, art 25 of the OECD Model Convention with respect to
Taxes on Income and on Capital.
VII arbitration is to be conducted under the statutes of the ECJ.
VIII arbitration is to be conducted under the statutes of the ICJ.
www.dlapiper.com | 09DLA PIPER CONTACTS
Joel Cooper Randall Fox
Partner, Co-Head International Partner, Co-Head of
Transfer Pricing International Transfer Pricing
T +44 207 796 6929 T +44 207 796 6928
M +44 773 829 5470 M +44 773 8295 935
joel.cooper@dlapiper.com randall.fox@dlapiper.com
CHINA
Windson Li Daniel Chan
Partner Partner, Tax Location Head
T +86 10 8520 0609 T +852 2103 0821
windson.li@dlapiper.com daniel.chan@dlapiper.com
Jessica Tien
Principal Economist
T +1 650 833 2112
jessica.tien@dlapiper.com
10 | APA & MAP Country Guide 2018 – Chinawww.dlapiper.com DLA Piper is a global law firm operating through various separate and distinct legal entities Further details of these entities can be found at www.dlapiper.com. This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this publication. This may qualify as “Lawyer Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. Copyright © 2018 DLA Piper. All rights reserved. | AUG18 | 3318106
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