Meaning
Administrative regulations issued by the State Taxation Administration govern the formal procedures, application criteria and monitoring protocols for establishing advance pricing arrangements in the People’s Republic of China. Under public notice 70, taxpayers and tax authorities negotiate binding transfer pricing methodologies for related-party transactions covering future tax years ranging between three and five years. The scope of this regulatory framework governs both unilateral agreements concluded with domestic tax authorities and bilateral or multilateral agreements negotiated with foreign competent authorities under bilateral double taxation treaties.
Application Stage
Procedural requirements mandate that an enterprise must reach annual related-party transaction volumes exceeding forty million yuan across the three tax years preceding the formal submission. The process consists of six sequential stages comprising the preliminary meeting, formal application, audit and evaluation, negotiation, agreement execution and post-execution monitoring. Taxpayers submit comprehensive documentation describing corporate organizational structures, functional and risk profiles, market conditions and chosen transfer pricing economic methodologies.
The tax authority retains full discretion to decline an application without legal appeal if the applicant fails to provide complete financial transparency or presents unverified comparability data.
Unilateral Assessment
Unilateral arrangements negotiated under this administrative regime provide certainty regarding domestic transfer pricing treatment but do not bind overseas tax authorities or eliminate double taxation risks abroad. The local tax bureau conducts intensive value-chain analyses to ensure that the proposed transfer pricing method accurately accounts for China-specific economic factors, including location savings, market premium advantages and domestic research contributions. Once accepted and signed, the unilateral agreement establishes the benchmarked profit ranges that the local enterprise must deliver over the operational term of the contract.
The domestic enterprise must submit an annual compliance report to the tax authority within five months after the end of each covered calendar year.
Rollback Provision
Statutory mechanisms under the measure permit the retroactive application of agreed transfer pricing methodologies to prior open tax years under specified procedural conditions. When the operational facts, business models and economic conditions of earlier financial periods mirror those established in the formal advance pricing arrangement, tax authorities can execute a rollback covering up to ten prior years. The rollback provision enables taxpayers to resolve open transfer pricing audit risks and eliminate potential penalty interest charges on historical related-party accounts.
Bilateral rollback applications require reciprocal consent between the Chinese competent authority and the foreign partner government before implementation.
