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The first China-Europe bilateral advance pricing arrangements (BAPA) were officially signed last month by the State Administration of Taxation (SAT) and the Danish Tax Authority (DTA) in Beijing and Tianjin. 

Negotiations for the BAPAs were concluded earlier this year on behalf of Novozymes whose global headquarters are based in Denmark with two Chinese subsidiaries in Beijing and Tianjin. 

Novozymes produces more than 700 kinds of enzymes, micro-organisms, biopolymers, and proteins used by more than 40 industries in 130 countries worldwide. The company employs more than 5,000 employees globally and has an annual turnover of US$1.6 billion.

Novozymes CFO Benny Loft says that for companies like Novozymes, it is important that the company operates under clear frameworks to enhance financial predictability and avoid financial surprises. 

According to PricewaterhouseCoopers, the SAT is actively promoting the use of advance pricing arrangements (APAs) and BAPAs as effective tools for taxpayers to obtain certainty in relation to their transfer pricing.  In addition, the SAT's press release on its website notes that it hopes the conclusion of this BAPA will encourage international taxation communication between China and Europe as well encourage the development of multinational investment in China. 

PwC in Denmark and China assisted Novozymes with all aspects of the BAPA which was concluded in the relatively short time frame of 11 months. The professional services firm says that the official signing of the first China - Europe BAPAs is not only a major milestone in China's APA history but also signals that European companies can now approach APAs in China with confidence.  This is particularly significant as China plays a major role in the supply chains of many European multinationals. 

The current economic downturn has created an extensively challenging environment for multinational corporations.  This challenging environment highlights the benefits of moving from traditional confrontational audit and dispute resolution techniques to collaborative approaches such as APAs that create certainty and enhance value.

This is also the first BAPA that addresses and resolves turnover tax issues and therefore includes the Chinese local tax bureaus (as well as the state tax bureaus) as signatories to the BAPA on the Chinese side.

In the past China has concluded BAPAs with Japan, the United States of America and Korea. 

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