Chinese tax authorities have reached their first agreement with their U.S. 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 related transactions to evade taxes.

Companies may buy goods and services at unreasonably high prices from other companies, possibly subsidiaries or parent companies in different economies to lower their profits, thus making them eligible to pay less income tax in selected countries. It requires the cooperation of tax authorities of countries involved to regulate transfer pricing.

The Chinese and U.S. tax authorities reached the agreement on Dec. 22, 2006 following 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, previously, China reached similar agreements with Japan and the Republic of Korea.

The APA program also enables the taxpayer and the SAT to work together to resolve potential double taxation disputes under China's tax law and relevant income tax treaties, according to the SAT statement.

It said APAs lessen the burden of compliance by giving taxpayers greater certainty regarding their transfer pricing methods.

The APA process increases the efficiency of tax administration by encouraging taxpayers to come forward and present to the SAT all the facts relevant to a proper transfer pricing analysis and to work toward a mutual agreement in a spirit of openness and cooperation, it said.

SAT Commissioner Xie Xuren said he was pleased with the completion of the agreement.

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

"I'm pleased we've been able to reach this agreement with the U.S. tax authority and Wal-Mart," said the commissioner.