The Chinese state taxation authority announced, by Notice No. 24/2021 of 30 July, that a simplified procedure for applying for a unilateral advance pricing arrangement (APA) would be implemented from 1 September.
The procedure for applying for an APA in China generally involves six steps:
- Pre-filing meeting
- Letter of intent
- Analysis / evaluation
- Formal application
- Negotiation / signing
- Implementation / monitoring.
The new streamlined procedure will consolidate the letter of intent, analysis / evaluation and formal application steps into one, and eliminate the pre-filing meeting step altogether. This will have the effect of condensing the whole process into three steps.
The latest China APA Annual Report, released in October 2020, shows that China signed 101 unilateral APAs from 2005 to 2019, accounting for 57% of all APAs signed. On average, 52% of new unilateral APAs were entered into within one year and 89% within two years.
However, the 2019 statistics showed that this process had slowed down. Of the 12 unilateral APAs, including one renewal, signed in 2019, only 17% were signed within one year and only 50% within two. This was due to limited resources and a significant increase in applications.
Under the new streamlined application procedure, the processing schedule for a unilateral APA will be nine months. The tax authorities will conduct an analysis within 90 days of receiving an application and, if accepted, will negotiate and sign the APA within six months.
To qualify for the simplified procedure, an applicant must have related-party transactions of more than RMB40 million (approximately USD6.2 million) for the three years before the tax year in which the tax authorities accept the case. Applicants that have failed to maintain transfer pricing documentation or have been subject to a transfer pricing or tax-related investigation will also not be accepted.