Tax authorities have reached the first agreement with their US counterparts that could resolve potential double taxation disputes involving retail giant Wal-Mart.

In a statement on the first bilateral advance pricing agreement (APA) between the two countries, the Chinese State Administration of Taxation (SAT) said the agreement concerning Wal-Mart made it possible for tax departments and the retail giant to resolve transfer pricing issues before they arose during an audit.

Tax experts said transfer pricing issues involved unreasonable pricing by corporate and individual taxpayers through transactions made to evade taxes.

Companies may buy goods and services at unreasonably high prices from other firms, possibly subsidiaries or parent companies in different economies, to lower their profits, thus reducing their income tax in selected countries. Tax authorities of the countries involved would be required to cooperate to regulate transfer pricing.

The Chinese and US tax authorities reached the agreement on December 22, 2006 after two rounds of talks in Beijing and Washington.

Wal-Mart Stores Inc, which operates in China, submitted the formal application to the two tax authorities in June 2006.

Chinese tax officials said that China had previously reached similar agreements with Japan and the Republic of Korea.

The APA program also enables taxpayers and the SAT to work together to resolve potential double taxation disputes.

SAT Commissioner Xie Xuren said he is pleased the agreement has been reached.

"We're working more closely with the US Internal Revenue Service with the development of economic cooperation between the two countries," he said.

Source: China Daily