China: Simplified procedure for unilateral APAs

Detailed guidance for companies seeking to reduce their transfer pricing risk and to allow for increased tax certainty

Detailed guidance for companies seeking to reduce their transfer pricing risk

The State Administration of Taxation on 26 July 2021 issued guidance (Announcement No. 24) that finalizes a simplified procedure with regard to unilateral advance pricing arrangements (APAs).

The simplified procedure for unilateral APAs—included in Announcement No. 24 and known in English as: “Announcement of the State Administration of Taxation on matters concerning the application of simple procedures for unilateral advance pricing arrangements"—includes detailed guidance for companies seeking to reduce their transfer pricing risk and to allow for increased tax certainty.

The simplified procedure for unilateral APAs was proposed in March 2021. Read TaxNewsFlash

As finalized, the simplified procedure reflects certain adjustments from the proposed guidance.

  • Changes were made with regard to the application conditions and the timing requirements for submitting contemporaneous documents.
  • Another amendment allows companies that have undergone substantial changes when compared with previous years to apply for a unilateral APA under the simplified procedure—a change that reflects an intention to encourage compliant taxpayers to apply for an APA, even in instances when there have been changes to the business.
  • Under the final guidance, it has been clarified that the simplified procedure is only applicable to unilateral APAs with regard to one location, and that it does not apply with regard to APA applications regarding multiple locations.
  • Companies eligible for the simplified procedure are those that are tax compliant, and Announcement No. 24 (together with other guidance) requires a higher level of corporate tax compliance including a relatively high degree of compliance with regard to the preparation of tax documents (such as transfer pricing contemporaneous documents and related-party transaction declaration forms).
  • The process under the simplified procedure reflects a shortened timeline from the date when the APA application is submitted to the date when an APA is signed, with time limits established for the tax authorities to review or achieve key procedures.
  • In general, the standard APA process is typically addressed in six stages—preparatory meeting, negotiating and signing intention, analysis and evaluation, formal application, negotiation and signing, and monitoring execution—whereas the simplified procedure condenses the APA process into three stages. The reduction in the APA process is further expected to accelerate APA reviews. Under the simplified procedure, there are clear deadlines for the tax authorities’ processes for accepting, evaluating, and negotiating APA applications. According to the requirements under Announcement No. 24, taxpayers can expect the process to be completed in a range of nine to twelve months.
  • The simplified procedure includes requirements for companies to cooperate with tax authorities, and those that refuse to cooperate may be subject to functional risk on-site interviews.
  • An interpretative document issued at the same time as Announcement No. 24 explains that the simplified procedure also applies with regard to cost-sharing agreements.
  • The interpretative document also clearly points out that if the two parties cannot agree to terminate the simplified procedure for an APA, the taxpayer cannot reapply for an APA under the simplified procedure, but can apply for the APA under the standard or general APA process (pursuant to Announcement No. 64).

For more information, contact the Global Leader of KPMG’s Global Transfer Pricing Services:

Komal Dhall | +1 212 872 3089 |


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