APAs in China and India: diverging paths, shared purpose

In 2022, the authors published an article exploring the then-prevailing landscape of advance pricing agreements (APAs) in India and China, highlighting their growing importance in providing tax certainty for multinational enterprises (MNEs). Three years later, it is worth revisiting that analysis to assess what has changed – and what has remained the same.

Many foundational aspects of India’s and China’s APA frameworks have remained largely unchanged. However, recent developments in policy, practice, and international cooperation have introduced new dynamics that are reshaping how multinational companies and tax authorities approach the APA, which remains one of the most effective and robust tools for transfer pricing risk management.

According to the annual APA reports, China signed 15 bilateral APAs (BAPAs) in 2022. Of these, 10 were completed within 24 months (measured from the start of the formal application stage), while the remaining five took longer than two years. In 2023, the number of signed BAPAs rose to 27, including 13 renewals. Of those 27, 13 were finalised within 24 months, while 14 required longer.

The number of new BAPA filings also grew. As of the end of 2022, the State Taxation Administration (STA) reported 145 BAPA cases in the intent or application phase, with 47 first-time filings. By the end of 2023, the total number of in-progress BAPA cases had increased slightly to 149, with 60 being first-time filings.

These developments reflect a sustained and substantive shift in China’s approach to BAPA negotiations. China has recorded four consecutive years of double-digit BAPA signings since 2020 – a clear departure from the pre-2020 period, when annual BAPA figures rarely reached such levels. The record-breaking 27 BAPAs signed in 2023 represents both a numerical and symbolic milestone, demonstrating the STA’s institutional commitment to proactively enhance cross-border tax certainty through this mechanism.

The efficiency of BAPA negotiations has also improved notably. While BAPAs inherently require more time than unilateral cases due to the involvement of two tax authorities, the fact that two-thirds of 2022’s BAPAs were concluded within 24 months – and nearly half in 2023 within the same period – signals tangible progress. Compared with the typical three- to five-year timeframes observed in past years, this acceleration reflects growing procedural discipline, enhanced coordination with treaty partners, and increasing experience on the part of China’s competent authority.

The rising number of first-time BAPA applicants is another encouraging sign. More MNEs are viewing the bilateral route as viable and effective – particularly in the face of increasing audit risks and the threat of double taxation. This trend points to growing confidence in the STA’s capabilities and a deepening awareness among taxpayers of the strategic value of BAPAs in addressing complex transfer pricing challenges in China.

Several key drivers underlie this growth.

First, the global tax environment has become more demanding, with greater scrutiny of intercompany pricing and more aggressive enforcement across jurisdictions. Against this backdrop, BAPAs offer a proactive solution that helps MNEs avoid disputes before they arise, particularly in relation to high-value or high-risk transactions.

Second, taxpayer readiness has significantly improved. MNEs are now better prepared and more experienced when initiating BAPA applications in China. This has helped reduce unnecessary disputes, improve mutual understanding with tax authorities, and increase the likelihood of timely resolution.

Nevertheless, challenges remain. It has been reported that China’s BAPA negotiations with certain treaty partners have faced delays, due to gaps between competent authority positions – especially in cases involving complex supply chains or profit attribution models. Additionally, as the proportion of renewals increases, tax authorities must balance the need to maintain prior agreements with the demands of new cases, which are often more technically challenging.

In 2022, China signed a total of 19 unilateral APAs (UAPAs), including three renewals. In 2023, the number of UAPAs signed declined to nine, with no renewal cases reported.

Regarding processing time, in 2022 and 2023, all signed UAPA cases were completed within 24 months.

This data suggests that the simplified UAPA pathway, introduced by the STA through a 2021 circular and effective from September 1 of that year, has significantly reshaped China’s APA administration. The simplified process has delivered shorter timelines, primarily through binding deadlines. The framework requires tax authorities to complete the application review within 90 days and finalise negotiations within six months of case acceptance, enabling all cases to be concluded within two years – a notable contrast to the open-ended timelines typical of standard APA procedures.

However, the volume of concluded UAPA cases reveals an uneven trajectory. Although there was a significant increase in 2022 – broadly attributed to the simplified framework’s initial impact – that momentum did not carry over into 2023, when the number dropped by more than half. Feedback from taxpayers – including Deloitte’s case experience – suggests that while the concept of a streamlined process is welcomed, its implementation has varied significantly across different regions.

In some regions, local tax bureaus have embraced the simplified procedures, applying the review timelines with discipline and clarity. These jurisdictions have demonstrated an ability to deliver rapid, predictable outcomes for routine transactions. In other jurisdictions, resource constraints or competing administrative priorities have hindered timely processing. This operational divergence raises broader questions about the sustainability of the simplified UAPA framework. While 2024 figures will not be released until December 2025, early observations are not optimistic that the pace of new signings has rebounded to 2022 levels.

From the taxpayer’s perspective, the simplified UAPA offers significant advantages. Its expedited timeline makes it an attractive option for managing transfer pricing risks, especially when bilateral negotiations are unwarranted or operationally challenging.

Ultimately, the simplified UAPA initiative represents a meaningful step forward in China’s efforts to modernise its transfer pricing administration. By embedding binding timeframes into traditionally complex procedures, it shows that well-structured APAs can deliver both efficiency and effectiveness. However, its mixed results also underscore that policy design alone cannot guarantee uniform outcomes – execution at the local level remains critical.

Following three years of reform, China’s APA regime is evolving into a more balanced and reliable instrument for managing transfer pricing risks. For MNEs with substantive operations in China, APAs – particularly BAPAs – are now a viable and increasingly efficient mechanism to secure tax certainty and reduce controversy.

BAPAs have emerged as the cornerstone of China’s APA strategy. Negotiation protocols have matured, with standardised implementation of joint meetings, exchange of position papers, and digital coordination tools. By contrast, the simplified UAPA pathway, while conceptually sound, still requires enhanced institutional support, clearer guidance, and broader practitioner confidence to achieve its intended objectives of scale and predictability.

For taxpayers, the implications are evident: early planning, transparent communication, and standardised documentation now generate measurable benefits in China’s evolving APA landscape. With a strategic approach, APAs can serve as a compliance tool as well as a foundation for long-term tax certainty and investment stability in one of the world’s most complex markets.

Looking ahead to 2026 and beyond, a new dimension is unfolding. As more Chinese-headquartered multinationals expand internationally, transfer pricing disputes with foreign tax authorities are expected to rise. These companies will increasingly rely on the STA for relief from double taxation via mutual agreement procedures (MAPs) and BAPAs.

This evolution demands the STA’s dual-capacity development: transitioning beyond its traditional role as host-country competent authority to fully embrace its emerging function as home-country competent authority. Fulfilling this dual mandate necessitates adopting a balanced approach to negotiation stance and dispute resolution strategy – one that addresses both inbound and outbound tax challenges.

To prepare for this new role, government authorities may prioritise diplomatic engagement with key treaty partners while calibrating their negotiating strategies. These efforts will not only facilitate smoother dispute resolution in the near term but also lay the groundwork for China’s enduring efficacy in cross-border tax diplomacy.

Similar to China, India’s APA programme has seen major shifts in recent years – though driven by a very different set of policy choices, resource constraints, and negotiation dynamics.

Since the 2022 evaluation of India’s APA programme, it has broken free from a fairly long run of low conclusion rates. The number of APAs concluded and signed by the Indian government in each of the past three years has reached new highs – 95 in 2022–23, 125 in 2023–24, and 174 in 2024–25. A total of 174 APAs in one cycle of 12 months seems to be a record for any jurisdiction around the world and India deserves accolades.

However, the transfer pricing landscape in India remains challenging. Even though the number of cases selected for transfer pricing audit has reduced over the past seven to eight years, primarily due to the adoption of defined risk parameters to identify appropriate cases for audit, there is still the challenge of highly aggressive assessments, large transfer pricing adjustments without robust economic analysis, different transfer pricing positions adopted by the field officers in different parts of the country, and rather formal approval of challenging transfer pricing approaches by the Dispute Resolution Panel or the Commissioner of Income Tax (Appeals).

In such an environment, MNEs would do well to aspire to tax certainty and stay focused on business opportunities and expansion. The APA programme of India is the best bet to achieve certainty on transfer pricing matters. The only other dispute prevention mechanism in India for transfer pricing issues, the safe harbour regime, though introduced almost simultaneously with the APA programme, has not attracted taxpayers’ attention for a number of reasons.

The recent record number of APA closures indicates that certain initiatives taken by the government are working. The most important initiative is the decision taken by the competent authorities of India and the US to adopt a more consistent approach to resolve BAPAs, having software development services (SWD) and IT-enabled services (ITeS) rendered from India to the US as covered transactions. This takes away the subjectivity involved in negotiating an appropriate cost-plus markup in each case. Through the combined use of a base markup and certain financial ratios derived from the financial statements of the Indian company, the appropriate cost-plus markup is determined. It is supposed to be objective and formula driven, and neither competent authority has any ultimate control over the final outcome. This hastens the conclusion of BAPAs involving such transactions.

The origin of this approach goes back to January 2015 when the then competent authorities of the two countries signed a framework agreement to have a formal and objective way to resolve the hundreds of pending MAP cases involving transactions concerning rendering SWD and ITeS from India to the US. That agreement enabled the resolution of MAP cases very efficiently and expeditiously. Indeed, it was discussed at the OECD’s FTA MAP Forum as a game changer and the out-of-the-box thinking by India and the US was appreciated.

India had been trying to use the same approach in BAPAs since 2017 and eventually the two countries agreed to do so in 2023. Since then, in all bilateral meetings between the two countries, dozens of APAs in the SWD and ITeS space are getting resolved. Since the highest number of BAPA applications in the Indian APA inventory are with the US, this approach has helped in achieving higher closures.

Another important initiative has been the focus on renewal applications and the unwritten approach of trying to close such cases simultaneously with the long-pending original applications or resolving them within 12–18 months of their filing, when the original APA has already been concluded. The only requirement for such renewal cases is that there should not be any significant change in the functions, assets, and risks (FAR) profile when compared with the original or previous APA.

A third initiative, or a set of measures, is a bit of procedural flexibility. For example, the two Indian competent authorities no longer ask for a very detailed fact-finding report from the field APA teams in respect of renewal bilateral applications. Similarly, in many renewal cases, the site visit is being dropped and that saves a lot of time. Another important change is to send the draft UAPA along with the fact-finding report to avoid multiple rounds of approval seeking from the Central Board of Direct Taxes.

The above initiatives have clearly resulted in higher closures of APAs. Unfortunately, some old challenges persist. The shortage of officers handling APA applications continues, and this ought to be addressed soon.

To strengthen the APA process, officers with deeper transfer pricing expertise may be selected to work on APAs to negotiate effectively or find solutions to achieve closure. Such appropriate selection of officers, combined with focused training, would likely empower India’s programme for transfer pricing dispute prevention.

Another challenge, mostly in UAPAs, is the possible perceived objective of maximising revenue through APAs rather than finding the right approach and appropriate transfer pricing. The government of India started the APA programme to prevent transfer pricing disputes and promote a non-adversarial relationship with taxpayers. Any revenue gains were only meant to be incidental.

Another major challenge is the practice of not applying the bilateral outcome automatically to the unilateral portion of the same APA application, even though the transaction and the FAR are identical in respect of both. To make it even more difficult, in some cases taxpayers are required to sign two agreements (one for the bilateral portion and one for the unilateral portion) even though it is one combined application that the APA programme envisages and allows to be filed.

The APA programme in India has, though, delivered results (815 agreements signed in 12 years) and continues to be attractive for taxpayers (about 2,050 applications filed in 13 years). However, the government of India needs to take steps to make the programme more efficient and improve the overall experience for taxpayers.

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