Studies On The Economic Issues Of Advance Pricing Arrangement

From 1978 to 2008, China's reform and opening up has undergone 30 years. During these 30 years, China's opening to the outside world was strengthened and foreign investment increased rapidly. By the end of July 2007, China had approved the establishment of 610,000 foreign-invested enterprises, whose actual foreign capital reached 720 billion US dollars. Although enterprises of foreign investment played a positive role in promoting the growth of China's national economic development, according to statistics, China's foreign-invested enterprises suffered a loss of average of 60 percent and the serious unreasonable transfer pricing behavior, which can attribute to China's relatively backward transfer pricing system leading to the serious loss of tax revenue.In recent years, advance pricing is on the rise globally, which transfers price adjustments prior change, and changes "medical treatment" to "prevention" in order to avoid the inherent limitations of traditional transfer pricing. China's APA system is still at its infancy stage and the law of pricing on the appointment of the procedures and regulations did not establish until in 2004. Due to the increasing frequent cross-border transactions, the system was popular with more and more enterprises and the tax authorities. Therefore, I choose APA as the topic of my thesis on the base of my own studies and economic theory, and analysis the advantage and disadvantage of APA. Combined with the legislation at home and abroad, I uncovered the existing problems and give a suggestion to the improvements of APA.This paper is divided into four chapters:The first chapter gives the reasons why I choose this topic, its significance, and the review of domestic and foreign development.In chapter II, I use game theory to illustrate the mechanism of unilateral APA, the feasibility of the implementation of APA, and analysis the problems encountered in practice from the angle of incomplete contracting theory.Based on the Chapter II, Chapter III will extend to discuss the bilateral advance pricing arrangement.Chapter IV presents the OECD's appointment pricing guide, the development of advance pricing in the United States, and Hong Kong's advance ruling. Combined with the theoretical analysis and lesson from international experience, I give the suggestions to improve China's APA system.