Statistics Reveal High Level of Double Tax Relief in China's MAP Process

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In November 2015, the Organization for Economic Co-operation and Development (“OECD”) published the annual statistics of its member countries and partner economies on mutual agreement procedure (“MAP”) cases for the 2014 reporting period.1 The annual statistics has been published since 2006 and is aimed to provide quantitative information of international tax disputes in OECD member countries and partner economies.

After the release of its MAP data for the first time for the year 2013, China submitted the statistics for the year 2014 as one of the five partner economies to the OECD (see Table 1 for detailed figures). The statistics reveal some general trends regarding the MAP process in China, including the increasing number of cases and improved efficiency.

China's MAP Statistics

Since 2006, the OECD began to compile annual statistics on the MAP caseloads of all its member countries and some partner economies. The statistics include all MAP requests made pursuant to the MAP provision of a tax treaty, such as determination of residency, permanent establishment (“PE”) and transfer pricing (“TP”) cross-border corresponding adjustment, etc. It should be noted the OECD clarifies that the statistics do not include requests for an Advance Pricing Arrangement (“APA”).

Among a few non-OECD economies, China has been providing the statistics for the last two years. This demonstrated China's efforts to make its dispute resolution mechanism more transparent.

Increase in New Cases and Inventory

The number of MAP cases initiated during 2014 increased to 29 (up from 23 in 2013) in China. It was still a relatively small number compared to other major economies for the same period, e.g. U.S. (354), U.K. (117), and Japan (45). Although 12 cases were completed in 2014, inventory increased from 43 cases (as of the end of 2013) to 55 cases (as of the end of 2014). This reflected increasing pressure for the Chinese Competent Authority in dealing with MAP cases.

Average Time to Complete

There was an overall decrease in the processing time for cases closed in 2014 in China. The average cycle time on MAP cases between China and OECD member countries decreased from 29.7 months in 2013 to 19.1 months in 2014, while that with non OECD members also decreased from 31 months to 23.5 months. The improvement mainly attributes to the effort of the State Administration of Taxation (“SAT”) in reducing cycle time of MAP cases initiated in recent years, e.g. one case initiated in 2014 took only four months to resolve.

Successful Rate of MAP Cases

In 2014, 12 MAP cases were successfully resolved and double tax was relieved either in whole or in part. Combining with the result of 2 cases that were closed/withdrawn in 2014 with double taxation, the percentage of relief received by taxpayers remains at a high level of 85.7% in 2014, a slight increase as compared to 83% in 2013.

Concluding Remarks

Overall, the 2014 MAP statistics show that Chinese Competent Authority process continues to be an effective mechanism for resolving double taxation.

While the inventory of cases has increased, it is believed that the SAT will ensure adequate resources are to be invested to the MAP function to make it more effective and efficient.

Along with the Base Erosion and Profit Shifting (“BEPS”) reform and unilateral measures by certain countries, it will be inevitable that there will be more cross-border tax disputes and higher risk of double taxation globally. This trend will undoubtedly result in the increase of the number of MAP cases.

Under the “Belt and Road” strategy, more Chinese companies are encouraged to expand their business outside the country. In that respect, common cross-border tax disputes, such as, TP and PE, will likely grow in numbers. Some Chinese companies have already resorted to MAP process to get relief according to reported cases.

On the other hand, the Chinese tax authorities are also paying more attention to international tax administration, which can be reflected in the rising TP adjustment initiated by the SAT and year-by-year revenue increases on taxation of non-resident taxpayers in the past few years. Besides administrative appeals and court appeals, taxpayers may also resort to MAP process which provides more flexibility and efficiency in terms of both procedure and substance to settle disputes.

Table 1: MAP Program Statistics for the 2014 Reporting Period
Year MAP Case was Initiated Opening Inventory on First Day of Reporting Period Initiated During Reporting Period Completed During Reporting Period Ending Inventory on Last Day of Reporting Period Closed or Withdrawn with Double Taxation During Reporting Period Average Cycle Time for Cases Completed, Closed or Withdrawn During Reporting Period (in months)            
2008 or prior 0 0     0 0 0 0 0 0
2009 0 0     0 0 0 0 0 0
2010 3 0     1 0 2 0 0 0 50
2011 6 1     2 1 4 0 0 0 30 40
2012 8 1     1 1 7 0 0 0 26 24
2013 16 7     3 2 11 5 2 0 10.2 15
2014     20 9 1 0 23 3 0 0 4
Total 33 9 20 9 8 4 47 8 2 0 19.1 23.5
(Source: 2014 OECD MAP Statistics                        

1 2014 OECD MAP Statistics

Matthew MuiPartnerYan HaiSenior ManagerPwC China

Printed with the permission of PricewaterhouseCoopers Consultants (Shenzhen) Ltd, a PRC incorporated entity. Copyright 2016 PricewaterhouseCoopers Consultants (Shenzhen) Ltd. All rights reserved. The information in this article, which was assembled on February 1, 2016, and based on the laws enforceable and information available at the date of publication, is of a general nature only and readers should obtain advice specific to their circumstances from their professional advisors.

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