Apas System

Multinational companies are becoming more and more important of theeconomic globalization. In this case the international tax avoidance takes placewhere the most typical way of tax avoidance is transfer pricing commonly usedby the multinational corporations. At present, tax bureau mainly audit and adjustafterwards, During this course, it made method procedure complex, enormouswork, and collect evidence difficultly not only increase the tax bureau burden butmade the taxpayers feel inconvenience. It is one of the most complicatedproblems in international taxation. An advance pricing agreement is anagreement that the taxpayer report an understanding on the transfer pricingmethodology in advance of controlled transactions, to be applied to one orapproves a transfer pricing methodology for amore tax authorities that giventerm, resolving the uncertainty about its acceptability and reducing audit risk. It isa new type of method of solving the transfer pricing problem in tax regulation.With the continuous opening-up of China toward the outside especially after itsentry into WTO, more and more multinational world rations will be coming toChina for the large potential market. These foreign investment enterprises oftendeclare that they are general debility, but they always increase capitals at thesame time. Most multinational corporations in China are the associatedcompanies of the multinationals, which conduct large mount of commoditiestrading, exchanges of technology, labor and fund with their associated companies.Such practice not only infringes the interests of the other investors and causes theloss of tax revenue of our country, but also results in the unfair competitionamong the multinational corporations in China, produces the false image of apoor investment environment in China and further affects the foreign capitalsinto China. However, our tax laws of anti-avoidance in transfer pricing is still atthe very initial stage thus inevitably has various defects such as lack ofcomparable index, re-sale price method, cost-plus method, etc. Therefore, it is animportant subject for our country to issue a perfect law of advance pricingagreement.Transfer pricing of multinational enterprises and the relevant government Regulations are hot issues in economic globalization. In view of that, this papermakes an extensive research on these issues, as well as the Advance PricingArrangements which seems to be the trend of Transfer Pricing regulation.Transfer pricing of multinational enterprises can be viewed as a process ofdynamic game played by multiple agents of different interest. It is essential formultinational enterprises to optimize the distribution of resources throughtransfer pricing to reduce transaction costs. Meanwhile, the differences intaxation between the home country and host countries can benefit multinationalenterprises potentially through transferring pricing management.However, transfer pricing abuse can impair the interest of the home countryand/or host countries. Henceforth, government regulations on transfer pricing areinitiated. Advance Pricing Arrangements transfers the government regulation ontransfer pricing from post-modification mode to pre-agreement mode, whichavoids the limitation of post-modification and reduces effectively the transactioncosts of tax collection.Advance Pricing Arrangements practice brings about a series of theoreticalissues. After intensive analysis of the definition, the taxation theoretical basis, theprincipals, the principles and the legal basis of Advance Pricing Arrangements,this paper focuses on the mechanism of Transfer Pricing under Advance PricingArrangements and proposes two differently constrained mathematical pricingmodels of Advance Pricing Arrangements.To draw on the experience of foreign countries, this paper makes detailedcomparison of practices of Advance Pricing Arrangements worldwide andcomes up with a few salutary lessons and practical implications. Furthermore,this paper examines the drawbacks of Transfer Pricing regulation system inChina and stresses the necessity and feasibility to implement Advance PricingArrangement in China, and finally, countermeasures are suggested for thedifficulties currently confronted.