A.1 Include Article 25(3), first sentence, of the OECD Model Tax Convention in tax treaties, requiring the competent authority (CA) to endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the tax treaty.

Of 107 tax treaties, 1 does not contain a provision that is equivalent to Article 25(3), first sentence, of the OECD Model Tax Convention (OECD, 2017a), i.e., missing the term “interpretation.” This treaty is expected to be modified by the Multilateral Instrument (MLI) upon entry into force for the treaty concerned.

China should as quickly as possible ratify the MLI to incorporate the equivalent of Article 25(3), first sentence, of the OECD Model Tax Convention (OECD, 2017a) in the treaty that currently does not contain such equivalent and that will be modified by the MLI upon its entry into force for the treaty concerned.

A.2 Provide roll-back of bilateral Advance Pricing Arrangement (APAs) in appropriate cases.

None noted.

It is possible to grant roll-back of bilateral APAs up to 10 years under Article 3 of State Taxation Administration’s (STA) Public Notice [2016] No. 64, if the related party transactions in prior years are the same or similar to those in the years covered by APAs.

Statistics from annual reports on China’s APA program as well as peer review comments also indicate roll-back being provided in several concluded APAs.

B.1 Include Article 25(1) of the OECD Model Tax Convention in tax treaties allowing taxpayers to request a MAP irrespective of the remedies provided by the domestic law of the treaty partners (first sentence).

In addition, to provide certainty to taxpayers and competent authorities on the availability of the MAP, a minimum period of three years for submission of a MAP request, beginning on the date of the first notification of the action resulting in taxation not in accordance with the provisions of the tax treaty, is the baseline (second sentence).

Of 107 tax treaties, 1 does not contain the equivalent to Article 25(1), second sentence, of the OECD Model Tax Convention (OECD, 2017), as the timeline to file a MAP request is shorter than three years from the first notification of the action resulting in taxation not in accordance with the provision of the tax treaty. This treaty is expected to be modified by the MLI to include such equivalent upon entry into force for this treaty.

China should as quickly as possible ratify the MLI to incorporate the equivalent to Article 25(1) of the OECD Model Tax Convention (OECD, 2017) in the treaty that currently does not contain such equivalent and that will be modified by the MLI upon its entry into force for the treaty concerned.

B.2 Allow submission of MAP requests to the CA of either treaty partner, or, alternatively, introduce a bilateral consultation or notification process.

None noted.

China reported that it has introduced a documented bilateral consultation or notification process for those situations where its CA would consider the objection raised in a MAP request as not being justified.

B.3 Provide access to MAP in transfer pricing cases.

None noted.

China indicated that it will always provide access to MAP for transfer pricing cases and is willing to make corresponding adjustments, regardless of whether the equivalent of Article 9(2) of the OECD Model Tax Convention (OECD, 2017) is contained in its tax treaties.

China also reported that it is in favor of including Article 9(2) of the OECD Model Tax Convention (OECD, 2017) in its tax treaties where possible and that it will seek to include this provision in all of its future tax treaties. In that regard, China signed the MLI and is currently in the process of ratifying this instrument, which is expected during 2021.

B.4 Provide access to MAP in relation to the application of anti-abuse provisions.

None noted.

China reported that it will provide access to MAP in cases relating to the application of a treaty anti-abuse provision or for cases concerning the question whether the application of the domestic anti-abuse provision comes into conflict with the provision of a tax treaty.

China’s guidance on the MAP process, however, does not clarify that MAP is available in cases concerning the application of anti-abuse provisions.

B.5 Provide access to MAP in cases of audit settlements.

None noted.

China reported that it has no administrative or statutory dispute settlement/resolution process in place, which is independent from the audit and examination functions and can only be accessed through a request by the taxpayer.

In view of the fact that it is in China not possible that the taxpayer and the tax administration enter into audit settlements, it has not denied access to MAP in cases of audit settlement.

B.6 Provide access to MAP if required information is submitted.

None noted.

China reported that when the taxpayer did not provide information or documentation required for its MAP request, its CA will specifically request the taxpayer to provide additional information and documentation, and that it has not denied access to MAP for cases where the taxpayer had provided the required information or documentation.

B.7 Include Article 25(3), second sentence, of the OECD Model Tax Convention in tax treaties, under which the CAs may consult together for the elimination of double taxation in cases not provided for in their tax treaties.

Of 107 tax treaties, 3 do not contain a provision that is equivalent to Article 25(3), second sentence, of the OECD Model Tax Convention (OECD, 2017). These three treaties are expected to be modified by the MLI to include the required provision upon entry into force for the treaties concerned.

China should as quickly as possible ratify the MLI to incorporate the equivalent to Article 25(3), second sentence, of the OECD Model Tax Convention (OECD, 2017) in those three treaties that currently do not contain such equivalent and that will be modified by the MLI upon its entry into force for the treaties concerned.

B.8 Publish clear and comprehensive MAP guidance and include the specific information and documentation that should be submitted in a taxpayer’s request for MAP assistance.

Contact details of the CA are not included in China’s MAP guidance, which concerns both Public Notice [2013] No. 56 and Public Notice [2017] No. 6.

China should without further delay update its MAP guidance to include the contact information of its competent authority.

B.9 Make MAP guidance available and easily accessible and publish MAP profile.

None noted.

The MAP guidance of China is published in the form of public notices and relates to transfer pricing cases and other cases and China’s MAP guidance can easily be found on the website of China’s State Taxation Administration.

B.10 Clarify in MAP guidance that audit settlements do not preclude access to MAP.

None noted.

Considering that under the domestic law of China, it is not possible that taxpayers and the tax administration enter into audit settlements, there is no need for China to address in its MAP guidance whether taxpayers can have access to MAP in such circumstances.

C.1 Include Article 25(2), first sentence, of the OECD Model Tax Convention in tax treaties requiring that the CA who receives a MAP request from the taxpayer, shall endeavor, if the objection from the taxpayer appears to be justified and the CA is not itself able to arrive at a satisfactory solution, to resolve the MAP case by mutual agreement with the CA of the other Contracting Party, with a view to the avoidance of taxation which is not in accordance with the tax treaty.

Of 107 tax treaties, 1 does not contain a provision that is equivalent to Article 25(2), first sentence, of the OECD Model Tax Convention (OECD, 2017). This treaty is expected to be modified by the MLI to include the required provision upon entry into force for the treaties concerned.

China should as quickly as possible ratify the MLI to incorporate the equivalent to Article 25(2), first sentence, of the OECD Model Tax Convention (OECD, 2017) in the treaty that currently does not contain such equivalent and that will be modified by the MLI upon its entry into force for the treaty concerned.

C.2 Seek to resolve MAP cases within a 24-month average timeframe.

China reported that its CA has designed and put in place a MAP recording system that is based on the template used for the reporting of MAP statistics under the MAP Statistics Reporting Framework. The average time needed to close MAP cases during the Statistics Reporting Period was 34.17 months.

With respect to C.2 recommendation in the Stage 1 peer review report for China to seek to resolve the remaining 75% of its post-2015 MAP cases that were pending on 31 December 2018 within a timeframe that results in an average timeframe of 24 months for all post-2015 cases, China reported that it has taken several actions to resolve MAP cases more efficiently and effectively.

C.3 Provide adequate resources to the MAP function.

MAP cases were not closed within 24 months on average, which indicates that the CA is not adequately resourced.

Some peers indicated that they experienced some difficulties in resolving MAP cases, which in particular concerns:

• Obtaining position papers in due time and receiving responses to position papers issued by peers

• Earlier and more frequent communication or meetings

The MAP inventory increased since 1 January 2016, only regarding other MAP cases, which may also indicate that the CA is not adequately resourced to cope with this increase.

While China has taken several steps to resolve cases in a timely manner, such as the addition of resources and pre-negotiation communication, further actions should be taken to ensure a timely resolution of MAP cases.

China should devote additional resources to its CA to handle MAP cases and also to be able to cope with the increase in the number of other MAP cases, such to be able to resolve MAP cases in a timely, efficient and effective manner. Such addition of resources should enable China to:

• Submit position papers in due time and respond to position papers issued by peers

• Have earlier and more frequent communication or meetings

C.4 Ensure staff in charge of MAP has the authority to resolve cases in accordance with the applicable tax treaty.

None noted.

In China, MAP cases are handled by two divisions within the State Taxation Department. Attribution/allocation cases are handled by the Anti-tax Avoidance Division of the International Tax Department and other cases by the Treaty Division of the International Tax Department. Both divisions have a different way for handling and resolving MAP cases, which can further refer to Public Notice [2017] No.6 and Public Notice [2013] No.56.

C.5 Use appropriate performance indicators for the MAP function.

None noted.

China reported that it applies one specific indicator to evaluate performance of each office in charge of MAP cases. For the MAP office in charge of transfer pricing cases, it is to conduct MAP negotiations with at least two treaty partners for at least five cases semi-annually. For the MAP office in charge of other cases, the performance indicator is to conduct MAP negotiations for at least two MAP cases every half year. China clarified that the evaluation will not take into consideration the amount of taxes subject of the relevant MAP cases.

C.6 Provide transparency with respect to the position on MAP arbitration.

None noted.

China reported that its policy is not to accept an arbitration provision in its tax treaties as a final stage to the MAP process. Up to date, China has not incorporated an arbitration clause in its tax treaties.

D.1 Implement all MAP agreements including by making appropriate adjustments to the tax assessed in transfer pricing cases.

None noted.

Concerning the process for implementing MAP agreements, China has in place different rules for transfer pricing and non-transfer pricing cases.

• Transfer pricing cases: Article 56 of Public Notice [2017] No. 6

• Other cases: Article 20 of the Public Notice [2013] No. 56

D.2 Implement all MAP agreements on a timely basis.

With respect to the time-frame for implementing MAP agreements, a deviation is made between transfer pricing cases and other cases. The timing of the implementation of MAP agreements is for both type of cases as follows:

• Transfer pricing cases: Article 56 of Public Notice [2017] No. 6 includes a 15 working day time-limit for local tax office in charge of the case to notify a MAP agreement to the taxpayer. There are no further timelines for the implementation of MAP agreements.

• Other cases: Article 34 of Public Notice [2013] No. 56 sets a time limit of three months for local tax office in charge of the case to implement MAP agreements.

D.3 Include Article 25(2), second sentence, of the OECD Model Tax Convention in tax treaties, or alternative provisions in Article 9(1) and Article 7(2) to provide full certainty to taxpayers.

Of 107 tax treaties, 9 contain neither a provision that is equivalent to Article 25(2), second sentence, of the OECD Model Tax Convention (OECD, 2017) nor both alternative provisions provided for in Article 9(1) and Article 7(2). Of these nine treaties:

• Three are expected to be modified by the MLI to include the required provision upon entry into force for the treaties concerned.

• One is expected to be modified by the MLI to include the required provision once the treaty partner has amended its notifications.

• Five will not be modified by the MLI to include the required provision. With respect to these five treaties:

• For two, negotiations are envisaged

• For three, no actions have been taken, but are included in the plan for renegotiations.

China should as quickly as possible ratify the MLI to incorporate the equivalent to Article 25(2), second sentence, of the OECD Model Tax Convention (OECD, 2017) in those four treaties that currently do not contain such equivalent and that will be modified by the MLI upon its entry into force for the three treaties concerned and upon amendment of the notifications by one of the treaty partners.

For the remaining five treaties that will not be modified by the MLI to include the equivalent of Article 25(2), second sentence, of the OECD Model Tax Convention (OECD, 2017), China should:

• For two, continue with the process to request the inclusion of the required provision via bilateral negotiations or be willing to accept the inclusion of both alternative provisions

• For the remaining three requests the inclusion of the required provision via bilateral negotiations in accordance with its plan for renegotiations or be willing to accept the inclusion of both of alternative provisions