On 26 July 2021, the State Administration of Taxation (SAT) issued Announcement No. 24 (2021) that finalizes a simplified procedure for unilateral advance pricing arrangements (APAs), which will come into effect on 1 September 2021. An Interpretation of the Announcement 24 from the SAT has also been published.
Announcement 24 contains three steps in the APA process: (1) application evaluation, (2) negotiations and signing, and (3) monitoring and execution. This is in contrast to Announcement 64, which sets forth six steps, including (1) pre-filing meeting, (2) letter of intent, (3) analyses and evaluation, (4) formal filing, (5) negotiations and signing, and (6) monitoring and execution.
The simplified process set time limits for tax authorities on the acceptance of APA applications and for negotiations and signing. The tax authorities must send a Notice to the enterprise within 90 days of receiving the APA application to inform the enterprise as to whether the application has been accepted. The tax authorities must complete the negotiation process within 6 months of issuing the Notice of Tax Matters. During the negotiations process, any time spent by the enterprise on preparation and submission of additional information required by the tax authorities is not included in the six-month time period. If the related documents are fully prepared in advance and submitted by the enterprise in time, an APA application could be concluded within 6 to 9 months under the simplified procedures.
The simplified procedures are available to taxpayers that fulfill following conditions according to the Announcement 24:
- The annual total related party transactions exceeds CNY 40 million in each of the three years prior to the year in which the tax authorities issue the Notice of Tax Matters; and
- The enterprise must meet any one of the following three conditions:
- It has provided the tax authorities with contemporaneous documentation for the three tax years prior to the simplified procedures application, and such documentation complies with the requirements set out in Announcement No. 42 (2016);
- It has executed an APA within the 10 years prior to the simplified procedures application, and has been in compliance with the requirements of the APA; or
- It was audited by tax authorities for special tax adjustments in the ten years prior to the simplified procedures application, and the case has been concluded by the tax authorities.
For unilateral advance pricing arrangements (APAs), both the general procedures under Announcement 64 and the simplified procedures under Announcement 24 may apply. If an application under simplified procedures is rejected or negotiations fail within the six-month period, the enterprise may apply for a unilateral or bilateral APA in accordance with Announcement 64. However, there is no need to re-submit information that had already been submitted.
