China’s SAT Gives Overview of Anti-Avoidance Initiatives

05 March 2012
By Sébastien Gonnet and Molvin Yiu

In this article, published in the 29 February 2012 edition of TP Week, NERA Vice President Sébastien Gonnet and Consultant Molvin Yiu provide an overview of the latest anti-avoidance measures of China's State Administration of Taxation (SAT). These measures include administrative guidelines to standardize anti-avoidance efforts across different regions and a new statistical indicator system to review tax payer information and profitability. The authors note that these developments in China confirm a higher transfer pricing scrutiny, a deepening of the overall transfer pricing knowledge, and an announced commitment to transfer pricing going forward. The authors examine the most recent advance pricing agreement (APA) and mutual agreement procedure (MAP) figures, which confirm the low success rate for candidates to Bilateral APAs. This may be explained by the relatively limited resources of the SAT's Anti-Avoidance team in Beijing, as well as different views put forward by Chinese SAT (notably with respect to local intangibles, market premium, and location savings), which may lead to some challenges when concluding negotiations with trading partners (developed economies) with more traditional transfer pricing views.