What is Advance Pricing Arrangement and who is eligible for such application under Chinese law?

An Advanced Pricing Arrangement is a multi-year agreement reached with the tax authority on an enterprise’s related transactions pricing principles and calculation method. The benefits normally consist of the following:

• It resolves transfer pricing issue
• It provides certainty in terms of both the operation and tax payable in the next few years
• It lowers the risk of being investigated
• It avoids double taxation

The enterprise applying for such Arrangement must satisfy all the following criteria:

• Having an annual related transaction volume exceeding RMB 40 million;
• Having performed in the obligations of filing statements on its related transactions and related parties in accordance with the law; and
• Having prepared, preserved and submitted contemporaneous materials according to the relevant provisions.