The Current Landscape of Mutual Agreement Procedure (MAP) in China: A Focus on Administrative Framework and Practices | Liu Zhihui

The Current Landscape of Mutual Agreement Procedure (MAP) in China: A Focus on Administrative Framework and Practices

I. Introduction

The Mutual Agreement Procedure (MAP) was first introduced in the 1977 OECD Model and later adopted in the UN Model. These provisions remained largely unchanged until the BEPS Action 14 initiative introduced enhanced requirements, which were subsequently incorporated into tax treaties through the Multilateral Instrument (MLI). To date, all of China’s double tax treaties include MAP provisions. This research examines China’s implementation of BEPS Action 14 standards regarding MAP.

II. Treaty-based MAP in China

To comply with the BEPS Action 14 minimum standards, the MLI introduced several adjustments to MAP provisions, including a three-year filing period, a commitment to resolving cases within 24 months, unlimited execution of MAP outcomes, and coverage of transfer pricing cases. Most of China’s treaties meet these minimum standards, but some variations exist due to limited MLI application. For instance, aone-year filing period is specified in the treaty with Turkeyand two-year for Italy, and the treaty with Canada assigns the burden of proof to taxpayers.

Also, two key deviations from the MLI also stand out.

Firstly, different from Art.16, part 5 of the MLI, China has not yet allowed taxpayer to initiate MAP by requesting the competent authority of the other contracting jurisdiction.

Also, China has not adopted mandatory arbitration for tax disputes, reflecting its emphasis on sovereignty and its cautious stance toward international tax arbitration, which remains underdeveloped domestically.

III. Domestic Implementation of MAP in China

China’s MAP framework is governed by two key regulatory documents, i.e. Announcement on Measures for Special Tax Investigation Adjustment and MAP (STA Public Notice [2017] No.6) and Announcement on the Implementation Measures for the MAP of Tax Treaties (STA Public Notice [2013] No. 56).

STA Public Notice [2017] No.6 focuses on transfer pricing MAP cases, providing a detailed process from application,acceptance, negotiation to execution. In the application stage, taxpayers are eased from submitting materials to both competent tax authority and State Tax Authority (STA) to only STA. Specific conditions for rejecting applications or suspending negotiations are also outlined. Notably, MAP requests can be denied if due taxes remain unpaid.

Under STA Public Notice [2013] No. 56, details of all non-TP MAP related issues are given for guidance. Specifically, it sets the prerequisite procedure for provincial tax authorities to review non-TP MAP requests and materials before forward the file to the STA.

IV. Reform Achievements and Psrospects

According to OECD MAP statistics, China’s MAP caseload does not show a clear trend, but since 2015, the average resolution time has significantly decreased, likely due to BEPS Action 14 reforms.

In the near future, improvements of MAP administration in China can be anticipated, particularly in time management, settlement methodologies, and cross-border cooperation efficiency. China may also expand the covered agreementsunder the MLI to include more treaties. However, progress on mandatory arbitration might grow slowly until China establishes a more robust tax administrative framework and gains greater domestic experience with arbitration mechanisms.

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OECD (2023), Making Dispute Resolution Mechanisms More Effective – Consolidated Information on Mutual Agreement Procedures 2023, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris,https://doi.org/10.1787/69b789e7-en.

OECD (2023), Mutual Agreement Procedure Statistics per jurisdiction, https://www.oecd.org/content/dam/oecd/en/topics/policy-issue-focus/map-statistics/map-statistics-china.pdf.

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