On December 21, 2015, SAT issued the China Advance Pricing Agreement Annual Report (2014) (“the Report”), which covers the statistics on China’s advance pricing agreements (“APA”) for January 1, 2005, to December 31, 2014. This is the sixth year that SAT has issued the Report to introduce the China APA system, procedures and implementation.
According to the Report, China signed three unilateral APAs and six bilateral APAs in 2014. In total, China had signed 70 unilateral and 43 bilateral APAs by December 31, 2014. China has yet to sign a multilateral APA. Also, based on the statistics of pending applications, 129 APAs are in various stages of application and 7 APAs are agreed but not yet signed.
Although the number of signed APAs in 2014 dropped compared to 2013, statistics confirm the trend that companies are more interested in signing bilateral APAs to gain future certainty and to reduce the risk of international double taxation.
The statistics also show the following China APAs’ characteristics as of December 31, 2014:
- main related-party transactions covered are purchases and sales of tangible assets, with an increase in applications to deal with the transfer and licensing of intangible assets and provision of services;
- bilateral APAs are mainly signed with Asian countries;
- 94% of unilateral APAs were signed within two years from the date of application, while 72% of bilateral APA were signed within two years;
- the transactional net margin method (TNMM) is the preferred transfer pricing method, using full cost plus rate and operational profit rate;
- 81% of APAs are with manufacturing companies.
Date of issue: December 21, 2015