Officials at the State Administration of Taxation (SAT) reveal that China's current 480,000 foreign-controlled enterprises collectively lose more than 120 billion RMB (US$14.5 billion) each year, leading to loss of tax revenues exceeding 30 billion RMB.

Many people thought this loss figure to be conservative. This motivates the SAT to actively seek and co-operate with other relevant tax authorities to track down tax evaders.

China and Japan signed China's first BAPA (Bilateral Advance Pricing Arrangement) agreement in Beijing. Both countries for the first time co-operate to track down tax evaders.

BAPA's main function is to counter tax evasion. Another function is to avoid double taxation. Specialists say that after both nations' tax authorities sign BAPA and make arrangements, they can share information about product and labor pricing with each other to avoid enterprises cheating on taxes.

Sources reveal that many foreign-invested enterprises use transfer pricing to evade taxes in China. This is usually how it works.

The China subsidiary uses high prices to purchase imports from its overseas mother company or her affiliates and resell the exports, after being re-processed, at low prices to overseas affiliates. This buy high-sell low transfer pricing method moves profit conveniently to affiliated companies overseas, causing losses of tax revenues for China.

(Chinanews.cn May 20, 2005)