Laws of the People's Republic of China

INTERIM PROVISIONS OF THE MINISTRY OF FINANCE
ON CERTAIN TAX ISSUES IN PROMOTING HORIZONTAL
ECONOMIC LINKS

  (Issued on March 29, 1986)

 

 

 

SUBJECT: TAXATION

ISSUING-DEPT: MINISTRY OF FINANCE

ISSUE-DATE: 03/29/1986

IMPLEMENT-DATE: 03/29/1986

LENGTH: 1359 words

TEXT:

With a view to supporting and encouraging the development of horizontal economic links and giving play to the role of taxation as the economic level, it is specifically stipulated, as hereunder, in the matter of taxation pursuant to the "Regulations of the State Council on Certain Issues in Further Promoting Horizontal Economic Links";

I. Taxation on Products of Organizations under Economic Links and on Products Supplied to One Another Within the Organizations

Double taxation shall be avoided on products supplied by enterprises under the links to one another to coordinate in completing chains of equipments. To this end, positive steps shall be taken to accelerate the pace of introducing the value added tax and simplify the procedures for taxation step by step. Measures shall also be taken to encourage the link in respect of products on which value added tax has not been levied on the principle that the burden of tax on the enterprises shall not be increased neither shall the tax payable to the state be reduced because of the link.

(1) No product tax shall be levied on products supplied to one another internally by organizations under economic links which exercise unified business accounting. Only products sold by such organizations shall be subject to product tax. The rate of the product tax shall be ascertained in the proportion that the amount of tax paid by the organizations before the link bears to the amount of their sale.

(2) Value added tax may be introduced for trial implementation in respect of organizations under economic links which do not exercise unified business accounting before such tax is introduced nationwide, except those organizations under economic links which manufacture such products as cigarette, wine, cosmetic, etc. at high tax rates. The measure for introducing the value added tax for trial implementation shall, for the time being, be set by the tax bureau of the relevant province, autonomous region, municipality directly under the State Council and city with enlarged power in consultation with the department concerned and reported to the General Tax Bureau of the Ministry of Finance for the record. The unified provisions shall apply when the value added tax is introduced nationwide.

(3) Product tax shall be reduced or exempted by adopting the under-mentioned measures on products manufactured internaly through coordination among the enterprises within the organizations under loose economic links against which the condition for levying the value added tax does not exist:

a. Product tax shall be exempted for the time being prior to the introduction if value added tax where enterprises shift over the manufacture of a portion of the products or parts or accessories manufactured by themselves to other enterprises for the purpose of carrying out specialized and coordinative production, and these latter enterprises manufacturing such products or parts or accessories in turn supply them to the original enterprises for completing chains of equipments or for continuous production at coordinative prices lower than producer prices;

b. Product tax shall be exempted on products which industrial enterprises entrust other enterprises to process and which are used for continuous production after they are taken back;

c. Except otherwise stipulated, a lower product tax at the rate of 5% may be levied on taxed products which are continuously reprocessed by industrial enterprises and which, after processing, fall into the same category of tax and to which the same rate of tax is applicable as that of the taxed products; and

d. A lower product tax at the rate of 5% may be levied on semifinished tooth paste and soap, parts of gold point fountain-pen, iridium-point pen and all pen, semifinished glass products of vacuum bottle, enamel cases semifinished glass roducts of lamp bulb(tube) supplied as materials, parts or accessories or products for completing chains of equipments by the party to the other in coordination at coordinative prices lower than producer prices where there is permanent coordinating relationship between the parties with a contract for coordination signed between them.

(4) Where the capital or equipment is supplied by the other party in the form of compensation trade for use by the enterprise in the technological reform and the expansion of productivity, and the investment is repaid in instalments by newly added products, product (value added) tax and resources tax shall be levied on the spot at the time the products are delivered according to the actual proceeds of sale. Investment provided gratis by the buyer on the terms that the seller supplies products at parity price shall not be treated as compensation trade, and the seller shall pay tax according to the law by treating the investment as the proceeds of sale.

(5) Product tax shall be reduced or exempted within a fixed period on the newly added valume of electricity (except electricity generated from diesel iol) sold by the power plant formed with funds raised.

(6) Product (value added) tax shall be reduced or exempted according to the relevant tax regulations on new products developed by organizations under economic links. The amount of the tax reduced or exempted shall be used exclusively for the development of technology.

II. Income Tax on Profits Realized by Organizations under Economic Links

(1) Profits realized by organizations under economic links (including state and colloectively run enterprises and units) shall be distributed before tax, namely, the profits obtained by each of the parties from the organizations under economic links according to the stipulations of the agreement shall be incorporated into the profits of the enterprise of its own for overall payment of income tax Where the party under the link is not an enterprise, the local tax authority shall be applied to for payment of tax after the profits obtained are brought back.

(2) Where the state run enterprises joining the organizations under economic links make their investment with the bank loan for technological measures, the profits obtained by such enterprises may be used as repayment of the loan before income tax according to the relevant stipulations for redemption of loans.

(3) The income tax shall be reduced by half within five years on the profits obtained by enterprises or units from the investment in energy sources and communication facilities as well as in "the old liberated areas, the areas populated by minority nationalities, the border areas and the poor areas." Income tax shall be exempted for the time being where the profits obtained are reinvested in the aforesaid industries and areas.

(4) Readjustment tax shall be exempted on the profits obtained by the state-run enterprises from the organizations under economic links, provided that the profits of such enterprises themselves shall remain to be subject to the payment of readjustment tax.

(5) Reduction of or exemption from income tax in respect of enterprises in special economic zones engaging in joint production shall be subject to the relevant provisions of the State Council.

III. Taxation on Income from Transfer of Technology

(1) Income tax shall be exempted for the time being where the annual net income of state or collectively run enterprises from the transfer of technology (including technological consultation, technological service, technological training, etc.) is less than RMB 300,000 Yuan. The portion in excess of RMB 300,000 Yuan shall be subject to the payment of income tax according to the law. Income tax shall be exempted for the time being on the net income of universities, colleges or institutes and scientific research institutions as well as other state-run units from the transfer of technology.

(2) Business tax shall be exempted for the time being on the income of enterprises, units and individuals from the transfer of technological achievements.

IV. Apart from the aforesaid stipulations, all organizations under economic links shall pay various taxes according to the prevailing stipulations of the tax law.