Laws of the People's Republic of China

State Administration of Taxation

Circular of the State Administration of Taxation on the Pre-tax Deduction Standard for the Relevant Expenses of the Headquarters of Consolidation-based Tax Payment Enterprises

Guo Shui Fa [2005] No. 136

The bureaus of state taxation and the bureaus of local taxation of all provinces, autonomous regions, municipalities directly under the Central Government, and municipalities under separate state planning:

For the purpose of helping corporations to implement a unified brand strategy and promoting corporations to strengthen their management, we hereby, after deliberation, issue a circular as follows on the issue of pre-tax deduction standard for the relevant expenses of the headquarters of consolidation-based tax payment enterprises:

I.

Deduction standard for the advertising expenses paid by the headquarters in a centralized way.

The advertising expenses paid by the headquarters in a centralized way shall be deducted according to the actual amount and within the deduction limit of the advertising expenses paid in a centralized way. The excessive amount shall be subject to tax payment adjustment when the headquarters calculates its income tax to be levied for the present year, and may be carried over to the subsequent years permanently according to the legal provisions.

The method of calculating the deduction limit of the advertising expenses paid by a headquarters in a centralized way shall be as follows: after the advertising expenses being actually deducted by each consolidation-based tax payment member enterprise according to the prescribed rates from the total of their approved advertising expenses which are calculated on the basis of their sales (business) revenues and according to the prescribed rates, the balance shall be the deduction limit of the advertising expenses paid by the headquarters in a centralized way.

II.

Deduction standard for the publicity costs and public welfare remedial donations paid by a headquarters in a centralized way.

The publicity costs and the public welfare remedial donations paid by a headquarters in a centralized way may, with reference to the calculation method prescribed in Article 1 of this Circular on deduction of advertising costs paid in a centralized way, be calculated and deducted prior to the payment of income tax, but the excessive amount may not be carried over to the subsequent years for deduction.

III.

Scope of Application

The abovementioned deduction standard shall only apply to the enterprises approved by the State Administration of Taxation to adopt consolidated-base payment of enterprise income tax.

The Circular shall go into effect as of January 1, 2005.

State Administration of Taxation

September 5, 2005