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- China, U.S. in tax deal sought by Wal-Mart
Date: 15-Jan-2007 Sources: (Shenzhen Daily)
CHINA and the United States have reached their first agreement that could resolve potential double taxation disputes involving U.S. retail giant Wal-Mart Stores Inc., China's State Administration of Taxation (SAT) said.
The bilateral advance pricing agreement (APA) would allow transfer pricing issues to be resolved by the two tax authorities and the company before they came up in an audit. It was signed Dec. 22 but posted last week on the tax bureau's Web site (www.chinatax.com).
Transfer pricing is when a corporation bills affiliated firms at an inflated price for goods or services to minimize profits in a jurisdiction in which the affiliate pays higher taxes.
Wal-Mart, the world's biggest retailer, had applied in June for an advance pricing framework between the United States and China, the statement said.
With its global procurement center in Shenzhen, Wal-Mart is seeking to expand stores in China.
China has similar bilateral tax deals in place with Japan and South Korea, the China Daily said Saturday.
Tax experts said transfer pricing issues involved unreasonable pricing by corporate and individual taxpayers through related transactions to evade taxes.
Companies may buy goods and services at unreasonably high prices from other companies, possibly subsidiaries or parent companies in different economies to lower their profits, thus making them eligible to pay less income tax in selected countries. It requires the cooperation of tax authorities of countries involved to regulate transfer pricing.
The APA program also enables the taxpayers and the SAT to work together to resolve potential double taxation disputes under China's tax law and relevant income tax treaties, according to the SAT statement.
It said APAs lessen the burden of compliance by giving taxpayers greater certainty regarding their transfer pricing methods.
The APA process increases the efficiency of tax administration by encouraging taxpayers to come forward and present to the SAT all the facts relevant to a proper transfer pricing analysis and to work toward a mutual agreement in a spirit of openness and cooperation, it said.
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