On November 21, 2022 the China Advance Pricing Arrangement Annual Report 2021 (2021 Annual Report) was issued by the PRC State Taxation Administration (STA). This is the 13th APA annual report released by the PRC STA to explain on the latest mechanism, procedure, and implementation of the APA program in China This report contains data pertaining to period between January 1, 2005 and December 31, 2021. This report is intended to provide guidance to enterprises interested in entering into APAs with the Chinese tax authority, and to serve as a reference for competent authorities of other countries (regions) and the general public to better understand China’s APA program.
Since 2009, the number of APAs approved by the STA has increased gradually over the years, as shown in the table below.
By December 31, 2021, the cumulative signed APAs by the STA is 226.
Total APAs signed
In 2021, a total of 20 APAs were signed, including 9 unilateral and 11 bilateral APAs.
Transaction types of APAs concluded by December 31, 2021.
A significant number of the APAs signed in 2021 involve taxpayers from the manufacturing industry, comprising 78.76% of the total APAs. The high number of APAs demonstrates the importance of having certainty in the transfer pricing treatment for inter-company transactions.
It is noted that the transactional net margin method (TNMM) is the most commonly used transfer pricing method, with 81.82% of the APAs adopted TNMM.
APA Procedure Optimization
To further implement BEPS action plan, the STA has gradually issued several statements.
It is expected that the number of application for APAs will continue to rise against the backdrop of tax uncertainty drawn out by the universal implementation more stringent tax measures introduced under the Base Erosion and Profit Shifting (“BEPS”) Action Plans, and the increased transfer pricing scrutiny by tax administrations.
In 2022, Shenzhen Tax Service and Shenzhen Customs jointly released the Notice on Related Issues Concerning the Coordinated Management of Transfer Pricing of Importing Goods from Related Parties (Shen Guan Shui  No. 62). Through this beneficial practice in Unilateral APA domain, the Shenzhen Tax Service and Shenzhen Customs explored the way of joint administration, synergetic law enforcement and extend the shared governance in the taxation field.
For entities that meet the APA application requirement, especially unilateral APAs, Crowe China could assist with the APAs application procedure. The requirement is as below:
The tax administration(s) may prioritize APA requests from the enterprise that meets one of the following conditions:
For entities that DO NOT meet the APA application requirement, Crowe China could also provide TP compliance and advices to reduce the potential TP risk for enterprises.