Laws of the People's Republic of China

the State Administration of Taxation

Circular of the State Administration of Taxation on Further Regulating the Work for the Administration of Key Sources of Income Tax of Foreign-related Enterprises

Guo Shui Han [2006] No.244

March 3rd, 2006

The bureaus of state taxation of all the provinces, autonomous regions, municipalities directly under the Central Government, and cities specifically designated in the state plan, and the local taxation bureaus of Guangdong Province and Shenzhen City,

With a view to strengthening administration on the sources of income tax of foreign-funded enterprises and foreign enterprises (hereinafter referred to as "foreign-related enterprises"), the State Administration of Taxation distributed the Circular of the State Administration of Taxation on Relevant Issues concerning Strengthening the Administration on the Sources of Income Tax of Foreign-related Enterprises (Guo Shui Han No.435 [2004], hereinafter referred to as the Circular on the Administration on Sources of Income Tax of Foreign-related Enterprises), and requested the enterprises of key tax sources to establish the mechanisms for monitoring, early warning, reporting and circulating reports. In light of the requirements of the Circular on the Administration on the Sources of Income Tax of Foreign-related Enterprises, we hereby make the following circular on relevant concrete issues concerning doing a good job for the administration on key sources of income tax of foreign-related enterprises:

I.

Establishing the System of Management on the Key Sources of Income Tax of Foreign-related Enterprises in the Charge of Special Persons

1.

Determining the key tax sources. Each locality shall, in light of the actual conditions, determine the key tax source enterprises of its own locality. In principle, the total revenue of income taxes payable by the key tax source enterprises, which is annually determined by each locality, shall account for more than 50% of the total revenue of income taxes of foreign-related enterprises within its own locality. Where an enterprise is under any of the following circumstances, it shall be regarded as a key tax source enterprise: (1) its annual sales income is 100 million yuan or more; (2) the annual foreign-related enterprise income tax paid by it is 5 million yuan or more; (3) it is on the Name List of Key Source Enterprises of Foreign-related Enterprise Income Tax Countrywide determined by the State Administration of Taxation (See Attachment I); (4) it is listed in the top ten enterprises in terms of the revenue of foreign-related enterprise income tax in this locality; and (5) it is determined by each locality as a key tax source to be monitored.

2.

Establishing standard archives. Each locality shall, for the enterprises that have been brought into the list of key tax sources of its locality, take various measures to establish the mechanism of communication between taxation agencies and enterprises, and set up enterprise archives for the key tax source enterprises by industrial sectors and accounts. It shall track and make investigations on them on the monthly or quarterly basis. In case any abnormal condition is discovered in the monthly or quarterly income, the locality shall analyze the reasons in a timely manner, and file the analysis results into the archives of enterprises. Each locality shall make flexibility analysis and industry analysis on the relevant economic indicators and the revenue of income tax of the key tax source enterprises in terms of their operation and taxation conditions, and file the relevant analysis reports into the enterprises' archives.

3.

Appointing special personnel to take charge. Each locality shall establish a high efficient system for monitoring and managing the key tax source enterprises, and master the alteration of the key tax sources and the trend of change in the revenue of enterprise income tax in a timely, accurate and overall manner, and make timely predication on the revenue of income tax of foreign-related enterprises. The international (foreign-related) taxation administrations at the provincial level shall appoint special personnel to take charge of the work of tax source monitoring and revenue analysis on the key tax source enterprises.

Each locality shall fill in the Form of Basic Information of Key Tax Source Enterprises of Income Tax of Foreign-related Enterprises (See Attachment II), which are included in the Name List of Key Tax Source Enterprises of Income Tax of Foreign-related Enterprises and among the top ten enterprises of the locality in terms of the revenue of foreign-related enterprise income taxes. The aforesaid Form of Basic Information of Key Tax Source Enterprises of Income Tax of Foreign-related Enterprises and the names and contact telephones of the personnel in the international (foreign-related) taxation administrations at the provincial level who take charge of monitoring the key tax source enterprises and income analysis shall be reported to the State Administration of Taxation (International Taxation Department) before the end of April, 2006 by floppy disks or CDs.

II.

Further Regulating the Mechanism of the Management on Key Tax Sources of Income Taxes of Foreign-related Enterprises and the Income Analysis

In light of the particularity and effectiveness of the management of income tax of foreign-related enterprises, the department of international (foreign-related) taxation management of each locality shall effectively combine the work for the management on key tax sources of foreign-related enterprises and the revenue analysis work so as to improve the efficiency and quality of the management on tax sources of income tax of foreign-related enterprises and the work of income analysis. Therefore, you shall focus your work on the following:

1.

Monthly Analysis. Each locality shall make a brief analysis on the monthly revenue of income taxes of foreign-related enterprises at the locality by month. The emphasis shall be laid on making a brief analysis on the factors of increase and decrease in terms of the abnormal changes (an increase of ¡À20%) incurred in the monthly revenue of its own locality by referring to the relevant conditions of the key tax source enterprises of its locality. Each locality shall, before the 8th day of the next month (postponed in the case of festivals or holidays), fill in the Form of Revenue Analysis of Income Taxes of Foreign-related Enterprises (For monthly analysis) (See Attachment III) concerning the abnormal alteration of the monthly income and the reasons that account for such an alteration, and report it to the State Administration of Taxation (International Taxation Department). No report may be made if there is no abnormality.

2.

Quarterly Analysis. Each locality shall, on the basis of the monthly analysis, make an in-depth analysis quarterly on the total profit of the key tax source enterprises and other relevant economic indicators, the quarter prepayment of foreign-related enterprise income taxes of its locality as well as the accumulative income, and fill in the Statistics Form of Income Tax Revenue of Foreign-related Enterprises of the Key Tax Source Enterprises and the Profit Thereof (For Quarterly Analysis) (See Attachment IV), so as to evaluate the prepayment of income taxes of foreign-related enterprises, discover the imbalance of entry of state treasury and other problems and make prediction on the revenue of the current year. Each locality shall, before the 25th day of the next month after the end of each quarter (postponed in the case of festivals or holidays), fill in the Statistics Form of Income Tax Revenue of Foreign-related Enterprises of the Key Tax Source Enterprises and the Profit Thereof in light of the prepayment of income taxes of the last quarter, and a written analysis report, and report them to the State Administration of Taxation (International Tax Department).

3.

Annual Analysis. The annual analysis shall be conducted at two stages:

(1)

Each locality shall, at the end of the fourth quarter each year by referring to the incomes, costs, profits and other relevant economic indicators of the key foreign-related tax source enterprises, make an in-depth analysis on the prepayment of taxes of the last quarter and the revenue of the whole year, make a detailed and systematic analysis on all the major factors affecting the increase and decrease of the revenue of its own locality. Such an analysis report shall be reported to the State Administration of Taxation (International Taxation Department) before January 31 of the next year.

(2)

Each locality shall, by referring to the settlement and payment of income taxes of foreign-related enterprises, make an overall and detailed analysis on the operation of the key tax source enterprises, the tax payment thereof and the income tax revenue of the foreign-related enterprises of the current year, and fill in the Form of Information on Income Tax of Foreign-related Enterprises by Nature and Industry (Annual Analysis) (See Attachment V). The analysis shall include the flexibility analysis on the year-round operations of the key tax source enterprises, the tax payment thereof, relevant economic indicators and the income tax revenue of foreign-related enterprises (full standard), the analysis on the year-round revenue by industries and economic types, the analysis on tax burdens and the prediction on the revenues of the next year, and etc.. When making an annual analysis, each locality may, for the taxation and major economic indicators (for example, the sales profit rate) within the whole country by industry, district, or enterprise scale, consult the "Basic Data of Foreign-related Enterprises in the Year 2000-2003" and the "Basic Data of Income Taxes of Foreign-related Enterprises Countrywide in 2004", which have been distributed at the meeting of international (foreign-related) taxation work countrywide. The aforesaid annual analysis report and the Form of Information on Income Tax of Foreign-related Enterprises by Nature and Industry shall be reported to the State Administration of Taxation (International Tax Department) before August 25 of the next year.

III.

Requirements for Data Collection and Analysis Report Submission

Each locality shall, when determining foreign-related key tax source enterprises and filling in the analysis form, make full use of the "Key Tax Source Investigation and Analysis System" by the department of statistics, and try its best to collect data from this System. A single archive shall be established for the foreign-related key tax source enterprise that is not listed in the aforesaid System.

Each locality may report the monthly and quarterly analysis materials by fax (010-63417977) or via the FTP (network) of the State Administration of Taxation (Path: the State Administration of Taxation/CENTER/International Taxation Department/Department of Taxation Collection Administration). The annual reports shall be submitted as official documents. For the convenience of making statistics and analysis, the written materials reported shall be made in Microsoft WORD, while the tables shall take be made in EXCELL.

IV.

Establishing the System of Regular Circulation of Reports

The State Administration of Taxation shall collect information and circulate regular reports on the work of management on key tax sources of foreign-related enterprise income taxes, income tax revenues and the analysis reports on the revenue reported, and pay attention to the examination on the quality and effectiveness of the aforesaid work, and circulate a report of criticism on the districts with low quality in the work of management on key tax sources and the work of revenue analysis.

Each locality may formulate concrete measures for the management on key tax sources and income analysis according to the realities, and continuously improve the efficiency and quality of the work for the management and analysis on income taxes of foreign-related enterprises, and strengthen the monitoring and management on foreign-related key tax source enterprises in an earnest and efficient manner.