By Agnes Lo, Associate Professor of Teaching, Lingnan University, Hong Kong & Raymond Wong, Associate Professor, City University of Hong Kong
China’s State Taxation Administration, on 29 October, published the 2019 Advance Pricing Arrangement Annual Report, providing statistics on advance pricing arrangements signed between taxpayers and the China State Taxation Administration from 2005 to 2019.
The statistics analyse the signed advance pricing arrangements by year, transaction type, region, industry, time taken to conclude, and transfer pricing method adopted.
The report reveals that the China State Taxation Administration concluded 21 advance pricing arrangements in 2019.
This record represents a historical high since 2013, and likely reflects the increased resources invested in the advance pricing arrangement by the China State Taxation Administration.
Among these 21 signed arrangements, 12 cases are unilateral arrangements and 9 cases are bilateral arrangements.
The report also shows that in 2005–2019, the transactional net margin method was used in 79.3% of all advance pricing arrangements, followed by the cost-plus method (9.6%), the profit-split method (4.8%), the comparable uncontrolled price method (2.9%), and the resale price method (0.5%).
The transactional net margin method remains the most commonly used transfer pricing method for all the individual years when comparing with all prior reports.
However, the number of cases that used the profit-split method also sharply increased from zero in 2018 to five in 2019 and is equal to the total sum of cases for the prior 14 years.
This changing trend responds to a request, stated in the 2018 report, urging companies to provide more information to the tax authorities during the review and evaluation phase that facilitates the use of the profit-split method or the resale price method for advance pricing arrangements.
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