Laws of the People's Republic of China

Guo Shui Fa [2006] No.165

The state taxation bureaus of each province, autonomous region, municipality directly under the Central Government, and each city specifically designated in the state plan:

With the adjustment of the policy for tax refunds for export and the administrative bylaws, the existing bylaws on letter-based investigations into the exportation-related taxation can not completely satisfy the needs any longer. For the purpose of resolving the problems such as the low rate of replies to the letter-based investigations into the exportation-related taxation, the not-in-time reply letters, and the inexact content of reply letters, and so on, the new "Measures for Administrating Letter-based Investigations into the Exportation-related Taxation" were formulated by the State Administration of Taxation, They are printed and are hereby distributed to you. They shall enter into force as of December 1, 2006.

The "Measures on Administrating Letter-based Investigations into the Exportation-related Taxation" is an important means of strengthening the connection of tax collection with tax refund and preventing tax refunds for export from being defrauded, and are effective to the administration of exportation-related tax refund particularly which are purchased by foreign trade enterprises in other places. Sending and replying the letters for investigation into the exportation-related taxation involve several departments in respect of the administration of tax refund for export and of tax source, etc., so it is comprehensive work. All levels tax offices shall attach importance to the work, fulfill with earnest, and all tax offices on province level shall enhance the management of sending and replying the letters for investigation. The state taxation administration of each province, autonomous region, municipality directly under the Central Government, or municipality under separate state planning may improve further details of the present Measures depending on the local actual situation, complete related provisions and strictly investigate the liabilities of the related entities and persons who violate related provisions of letter-related investigation.

Annexes:

1: Letter of State Administration Taxation on Investigating and Verifying Related Information on Exportation-related Taxes (Omitted)

2: Reply Letter of State Administration of Taxation on Investigating and Verifying the Information concerning the Exportation-related Taxation (Omitted)

3: Letter of State Administration of Taxation on the Related Information concerning Reminding the Investigation and Verification of Exportation-related Taxation (Omitted)

The State Administration of Taxation

November 9, 2006

Measures on Administrating Letter-based Investigations into the Exportation-related Taxation

Article 1

In order to strengthen the administration of tax refund for export, improve the letter-based investigation system for the taxation authorities on the investigation and verification of the related information on export goods, prevent against the illegal acts of defrauding tax refund for export, these Measures are formulated.

Article 2

In case a taxation authority responsible for tax refund for export (hereinafter referred to as the tax refund authority) is under any of the following circumstances in the process of handling exportation-related tax refund (exemption), it shall, in accordance with the format of Annex 1, send a letter for investigation to the taxation authority at or above the county level in the place where the enterprise supplying the export goods were located, and shall handle the matter based on the reply letter. The taxation authority may not refund or exempt the taxes which have not been refunded (exempted).

1.

Any doubts which are found in the process of check, examination and approval of the tax refund about the export goods source;

2.

Any abnormal situation which is found in the process of evaluation and analysis of tax refund;

3.

Any doubts with the production, operation and tax payment of the supplier;

4.

Other situations under which the tax refund authorities consider necessary.

The state taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central Government, and all cities specifically designated in the state plan may further detail the specific letter-based investigations¡¯ scope within their respective jurisdictions according to their local actual situations.

Article 3

In case the export enterprise and the supplier are within the jurisdiction of the state taxation administration of the same prefecture, municipal or county level, the internal tax refund department of the taxation authority may also directly file a written application to the administrative department of tax source (the format of the written application shall be designed by the state taxation administration various provinces, autonomous regions, municipalities directly under the Central Government, or various municipalities under separate state planning themselves), and the administrative department of tax source shall take charge of the organization of the check and investigation, the contents of which should be consistent with those listed in Annex 2.

Article 4

The internal functional department of taxation authority in charge of sending letters and receiving replies shall designate full-time or part-time employees to be responsible for managing the letter-based investigations into the exportation-related taxation, who shall register, straighten out and pigeonhole the sent letters and the replies. The documents of letter-based investigation shall be sent by registered mail or by express mail, and any person of an enterprise or other non-taxation department concerned with the letter-based investigation may not be entrusted to fill out or mail the documents of letter-based investigation.

Article 5

The replying letter shall be taken charge by the taxation authority at or above the county level where the enterprise supplying the export goods registered (hereinafter referred to as the taxation authority in the letter-replying locality), and the taxation authority shall, after receiving the letter on investigation into the exportation-related taxation, send two taxation officials or more to conduct an on-site investigation of the enterprise supplying the export goods, verify the production, operation capacity of the supplier(including the supplier¡¯s own production capacity and the information about the products processed upon entrustment and the purchased products), and the tax payment, and so on.

Article 6

The taxation authority in the letter-replying locality shall, in light of the format of Annex 2, reply letter within 1 month after receiving the letter. If it cannot reply on time due to any particular circumstances, it shall, within 1 month, make an explanation of the letter-sending entity and notify the specific replying time, and the postponed time of replying may generally not more than 3 months.

Article 7

The taxation authority in the letter-replying locality shall, according to the related administrative measures, put the enterprises into the scope of enterprises under focused monitoring, which are relevant to the letter-based investigations, especially the enterprises concerned with the letter-based investigations for many times.

Article 8

In case the tax refund authorities at all levels have not received any replies or "the explanation of the reason" from the other party within 1 month after sending the letter, they shall send a reminding note (Annex 3) to the replying entity in a timely manner. If any replies have not been received within 1 month after the reminder, a report shall be made to the provincial administration of state taxes level by level. In case the provincial administration of state taxes fails to reply after being coordinated and urged, the tax refund authority shall make a report about the related information truthfully to the State Administration of Taxation. The State Administration of Taxation shall assess the work of local letter-based investigation according to situations.

Article 9

The tax refund authority shall, after receiving of the reply letter, deal with it in the following methods:

(I)

The tax refund authority may not refund tax for export where the reply letter confirms that the supplier is under any of the following circumstances, and shall recover the refunded taxes. In case the exportation-related tax refund has been completed, recover the refunded taxes. If the case needs to be put on file for investigation and punishment, the tax refund authority shall transfer the related materials to the checking department to put them on file for investigation and punishment in accordance with related provisions in a timely manner.

1.

The supplier has no production capacity (the production capacity shall contain the supplier¡¯s own production capacity and the products processed upon entrustment and the purchased products, the same hereafter);

2.

The special VAT invoices for the batch of goods are issued falsely;

3.

The purchase of the non-self-produced goods among the batch of goods is untrue.

(II)

The following issues in the reply letter shall be deemed as doubtful points, which shall be further investigated and verified, and, before they are clarified from the investigation and verification, the tax refund for export may not be handled:

1.

All the goods sold by the supplier are not consistent with its production capacity obviously;

2.

The supplier has the conduction of falsely issuing invoices before replying, and is being investigated and punished;

3.

The supplier has the conduction of providing false VAT input invoices, and is being investigated and punished;

4.

The supplier is in default of paying VAT or consumption tax; and

5.

Other circumstances which need further check.

As to the circumstances in the Items 1 through 5 mentioned above, the replying entity shall timely inform the sending entity of related information by letter after the investigation and punishment have been completed or after the defaulted taxes have been made up by the supplier.

Article 10

As to any entity fails to send letters for investigation which it ought to send or fails to timely make a letter reply, the said entity and its related staff members must be subject to liabilities. As to the contents of the reply letter are untrue, the related entity and each signatory must be subject to severe liabilities according to each stage of the letter-based investigation; any insider who colludes with any outsider and breaks the Criminal Law shall be transferred to the judicial organ and shall be punished.

Article 11

The tax refund department of each provincial state tax administrations is the leading department of the letter-based investigation, and other related departments shall cooperate positively.. The leading department of letter-based investigation at or below the provincial level and the participating cooperation departments shall be determined by the provincial state tax administration according to its own actual circumstance.

Article 12

Where any previous provision is not consistent with these Measures, these Measures shall prevail. The "Circular of the State Administration of Taxation on the Print and Distribution of the Provisions on Letter-based Investigation into the Exportation-related Taxation" (Guo Shui Fa [1995] No.037), the "Circular of the State Administration of Taxation on Rigidifying Tax Refund for Export Checks and Strengthening the Work of Letter-based Investigations into the Exportation-related Taxation" ( Guo Shui Ming Dian [1996] No.56), the "Supplementary Circular of the State Administration of Taxation Concerning the Issue of Letter-based Investigations into the Exportation-related Taxation" (Guo Shui Han[1998] No. 406), the "Circular of the State Administration of Taxation on Strictly Strengthening the Administration of the Tax Refund (Exemption) Purchase Concerning Export Goods in Chaozhou and Shantou Areas of Guangdong Province" (Guo Shui Han [2000] No. 51) shall be stopped from implementation.