Laws of the People's Republic of China

(Promulgated by Decree No. 85 of the State Council of the People's Republic of China
on June 30, 1991, and effective as of July 1, 1991)

 

SUBJECT: TAXATION

Article 46: Patents, proprietary technology, trademarks, copyrights, land‑use rights and other intangible assets of enterprises shall be appraised on the basis of the original value.

 1. For alienated intangible assets, the original value shall be the actual amount paid based on a reasonable price.

 2. For self‑developed intangible assets, the original value shall be the actual amount of expenditure incurred in the course of development.

 3. For intangible assets used as investment, the original value shall be such reasonable price as is stipulated in the agreement or contract.

 Article 47: The amortization of intangible assets shall be computed using the straight‑line method. Intangible assets transferred or used assigned or as investments, where the useful life is stipulated in the agreement of contract, may be amortized over the period of that useful life; the amortization period with respect to intangible assets for which no useful life has been stipulated or that have been developed internally shall not be less than ten years.

 Article 48: Reasonable exploration expenses incurred by enterprises engaged in the exploitation of petroleum resources may be amortized against income from oil (gas) fields that have already commenced commercial production. The amortization period shall not be less than one year.

 Where operation of a contract field owned by a foreign oil company is terminated due to failure to find commercially viable oil (gas), and where ownership of the contract for the exploitation of petroleum (gas) resources is not continued and management organizations or offices for carrying on operations for the exploitation of petroleum (gas) resources are no longer maintained in China, reasonable exploration expenses already incurred with respect to the terminated contract field shall, upon examination and confirmation and the issuance of certification by the tax authorities, be permitted to be amortized against production income of a newly owned contract field when the new contract for cooperation of oil (gas) resources is signed within ten years from the date of the termination of the old contract.

 Article 49: Expenses incurred by enterprises during the period of organization shall be amortized beginning with the month following the month in which production and business operations commence; the period of amortization shall not be less than five years.

 The period of organization mentioned in the preceding paragraph refers to the period from the date of approval of the organization of the enterprise to the date of commencement of production and business operations (including trial production and trial business operations).

 

Article SO: Inventories of merchandise, finished products, goods in process, semi‑finished products, raw materials, and other such materials of enterprises shall be valued at cost.

 Article 51: Enterprises may choose one of the following methods: first‑in, first‑out; moving average; weighted average or last‑in, first‑out as the method for computing actual costs with respect to the delivery of receipt and use of goods in stock.

 Once a method of valuation has been adopted for use, no change shall be made thereto. Where a change in the method of valuation is indeed necessary, the matter shall be reported to the local tax authorities for approval prior to the commencement of the next tax year.

 Chapter IV

 Business Dealings Between Associated Enterprises

 Article 52: The "associated enterprises" mentioned in Article 13 of the Tax Law refers to companies, enterprises and other economic units that have any of the following relationships with other enterprises:

 1. Relationships with respect to existing direct or indirect ownership of or control over such matters as finances, business operations or purchases and sales;

 2. Direct or indirect ownership of or control over it and another by a third party; 3. Any other relationship with respect to an association of reciprocal interests.

 Article 53: The "business transactions between independent enterprises" mentioned in Article 13 of the Tax Law refer to business dealings carried out between unassociated and unrelated enterprises on the basis of arm's length prices and common business practices.

 Enterprises have a duty to provide to the local tax authorities relevant materials such as standard prices and charges with respect to business dealings with their associated enterprises.

 Article 54: Where prices with respect to purchase and sales transactions between an enterprise and its associated enterprises are not based on independent business dealings, adjustments may be made thereto by the local tax authorities according to the following arrangements and methods of determination:

 1. Based on prices of the same or similar business activities between independent enterprises;

 2. Based on the level of profits obtained from resales with respect to unassociated and unrelated third party prices;

 3. Based on costs plus reasonable expenses and profit margin; 4. Based on any other reasonable method.

&nbspArticle 55: Where interest paid or received with respect to accommodating financing between an enterprise and an associated enterprise exceeds or is lower than the amount that would be agreed upon by unassociated and unrelated parties, or where the rate of interest exceeds or is lower than the normal rate of interest with respect to similar business, adjustments may be made thereto by the local tax authorities with reference to normal rates of interest.

 Article 56: Where labor service fees paid or received with respect to the provision of labor services by an enterprise to an associated enterprise are not based on business dealings between independent enterprises, adjustments may be made thereto by the local tax authorities with reference to the normal fee standards of similar labor activities.

 Article 57: Where the valuation of receipt or payment of usage fees with respect to such business dealings as the transfer of property or the granting of rights to the use of property between an enterprise and an associated enterprise is not based on business dealings between independent enterprises, adjustments may be made thereto by the local tax authorities with reference to amounts that would be agreed to by unassociated and unrelated parties.

 Article 58: Management fees paid by an enterprise to an associated enterprise shall not be claimed as expenses.

 Chapter V

&nbspWithholding At Source

 Article 59: The "taxable income on profits, interest, rents, royalties and other income" mentioned in Article 19, paragraph 1 of the Tax Law shall, except as otherwise stipulated by the State, be computed on the basis of gross income. Gross royalties obtained from the provision of patents and proprietary technology includes fees for blueprint materials, technical services and personnel training as well as other related fees.

 Article 60: The "profits" mentioned in Article 19 of the Tax Law refers to income derived from the right to profits according to the proportion of investment, equity rights, stockholding, or other non-debt profit‑sharing rights.

Article 61: The "other income" mentioned in Article 19 of the Tax law includes gains from the transfer of property such as houses, buildings and structures and attached facilities within China and land‑use rights.

 The "gains" mentioned in the preceding paragraph refers to the amount remaining from the receipt on transfer minus the original value of the property. Where foreign enterprises are unable to provide correct certification of the original value of the property, the original value of the property shall be determined by the local tax authorities according to the specific circumstances thereof.

 Article 62: The "amount of payment" mentioned in Article 19, paragraph 2 of the Tax Law refers to cash payment, payment by remittances, and amounts paid by account transfers, as well as amounts in equivalent cash value paid in non‑cash assets or rights and interests.

 Article 63: The "profits obtained from an enterprise with foreign investment" mentioned in Article 19, paragraph 3, Item 1 of the Tax Law refers to income obtained from the profits of an enterprise with foreign investment following the payment or reduction of or exemption from income tax in accordance with the provisions of the Tax Law.

 Article 64: The "international finance organizations" mentioned in Article 19, paragraph 3, Item 2 of the Tax Law refer to financial institutions such as the International Monetary Fund, the World Bank, the Asian Development Bank, the International Development Association, and the International Fund for Agricultural Development.

&nbspArticle 65: The "Chinese State banks" mentioned in Article 19, paragraph 3, Items 2 and 3 of the Tax Law refer to the People's Bank of China, the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the People's Construction Bank of China, the Bank of Communications of China, the Investment Bank of China, and other financial institutions authorized by the State Council to engage in credit businesses such as foreign exchange deposits and loans.

&nbspArticle 66: The scope of the reduction of or exemption from income tax on royalties provided for in Article 19, paragraph 3, Item 4 of the Tax Law is as follows:

 1. Royalties received in providing proprietary technology for the development of farming, forestry, animal husbandry and fisheries:

 a. Technology provided to improve soil and grasslands, develop barren mountainous regions and make full use of natural conditions;

 b. Technology provided for the supplying of new varieties of animals and plants and for the production of pesticides of high effectiveness and low toxicity;

&nbspc. Technology provided such as to advance scientific production management with respect to farming, forestry, fisheries and animal husbandry, to preserve the ecological balance, and to strengthen resistance to natural calamities.

 2. Royalties received in providing proprietary technology for scientific institutions, institutions of higher learning and other scientific research units to conduct or cooperate in carrying out scientific research or scientific experimentation;

&nbsp3. Royalties received in providing proprietary technology for the development of energy resources and expansion of communications and transportation;

 4. Royalties received in providing proprietary technology with respect to energy conservation and the prevention and control of environmental pollution;

 5. Royalties received in providing the following proprietary technology with respect to the development of important fields of science and technology:

 a. Production technology for major and advanced mechanical and electrical equipment;

b. Nuclear power technology;

 c. Production technology for large‑scale integrated circuits;

 d. Production technology for photoelectric integrated circuits, microwave semi‑conductors and microwave integrated circuits, and manufacturing technology for microwave electron tubes;

 e. Manufacturing technology for ultra‑high speed computers and microprocessors;

 f. Optical telecommunications technology;

 >g. Technology for long‑distance, ultra‑high voltage direct current power transmission;

 h. Technology for the liquefaction, gasification and comprehensive utilization of coal.

 Article 67: With respect to the income of foreign enterprises engaged in China in construction, installation, assembly, and exploration contracting work, and provision of labor activities such as consulting, management and training, the tax authorities may designate the parties paying the contracted amounts and labor service fees as tax withholding agents.

&nbspChapter VI

 Tax Preferences

 Article 68: Pursuant to the provisions of Article 6 of the Tax Law, the granting of any necessary preferential treatment with respect to enterprise income tax to enterprises with foreign investment that are encouraged by the State shall be implemented in accordance with the provisions of the relevant laws and administrative rules and regulations of the State.

 Article 69: The "special economic zones" mentioned in Article 7, paragraph 1 of the Tax Law refer to the special economic zones of Shenzhen, Zhuhai, Shantou and Xiamen and the Hainan Special Economic Zone established by law or established upon approval of the State Council; the "economic and technological development zones" mentioned therein refer to the economic and technological development zones in the coastal port cities established upon approval of the State Council.

 Article 70: The "coastal economic open zones" mentioned in Article 7, paragraph 2 of the Tax Law refer to those cities, counties and districts established as coastal economic open zones upon approval of the State Council.

 Article 71: The "Imposition of enterprise income tax at the reduced rate of 15%" mentioned in Article 7, paragraph 1 of the Tax Law shall be limited to income obtained by enterprises from production and business operations in the respective areas so specified in Article 7, paragraph 1 of the Tax Law.

&nbspThe "imposition of enterprises income tax at the reduced rate of 24%" mentioned in Article 7, paragraph 2 of the Tax Law shall be limited to income obtained by enterprises from production and business operations in the respective areas so specified in Article 7, paragraph 2 of the Tax Law.

 Article 72: The "enterprises with foreign investment of a production nature" mentioned in Article 7, paragraphs 1 and 2 and Article 8, paragraph 1 of the Tax Law refer to enterprises with foreign investment engaged in the following industries:

 1. Machine manufacturing and electronics industries; 2. Energy resource industries (not including exploitation of oil and natural gas); 3. Metallurgical, chemical and building material industries; 4. Light industries, and textiles and packaging industries;

 5. Medical equipment and pharmaceutical industries;

 6. Agriculture, forestry, animal husbandry, fisheries and water conservation; 7. Construction industries;

 8. Communications and transportation industries (not including passenger transport);

 9. Development of science and technology, geological survey and industrial information consultancy directly for services with respect to production, and services with respect to repair and maintenance of production equipment and precision instruments;

 10. Other industries as specified by the tax authorities under the State Council.

 Article 73: The "imposition of enterprise income tax at the reduced rate of 15%" mentioned in Article 7, paragraph 3 of the Tax Law applies to the following:

 1. Production‑oriented enterprises with foreign investment established in the coastal economic open zones, special economic zones and in the old urban districts of municipalities where economic and technological development zones are located and that are engaged in the following projects:

 a. Technology‑intensive or knowledge‑intensive projects;

&nbspb. Projects with foreign investments of over US$30 million and having long periods for return on investment;

 c. Energy resource, transportation and port construction projects;

&nbsp2. Sino‑foreign equity joint ventures engaged in port and dock construction;

 3. Financial institutions such as foreign capital banks and Sino‑foreign banks established in the special economic zones and other areas approved by the State Council, where the capital contribution of the foreign investor or the funds for business activities allocated by the head office bank to the branch bank exceeds US$10 million, and where the period of operations is ten years or more;

 4. Production‑oriented enterprises with foreign investment established in the Pudong New Area of Shanghai, as well as enterprises with foreign investment engaged in energy resource and transport construction projects such as airports, ports, railways and power stations;

 5. Enterprises with foreign investment recognized as high or new technology enterprises established in the State high or new technology industrial development zones designated by the State Council as well as enterprises with foreign investment recognized as new technology enterprises established in the new technology industrial development experimental zone of the municipality of Beijing;

 6. Enterprises with foreign investment engaged in projects encouraged by the State and established in other areas stipulated by the State Council. Enterprises with foreign investment in projects listed in Item 1 of the preceding paragraph shall, following approval by the State Tax Bureau of an application submitted by such enterprises, be subject to enterprise income tax at the reduced tax rate of 15%.

 Article 74: The "period of business operations" mentioned in Article 8, paragraph 1 of the Tax Law refers to the period commencing on the date an enterprise with foreign investment actually begins production or business operations (including trial production and trial business operations) and ending on the date the enterprise ceases production or business operations.

 Enterprises with foreign investment that, pursuant to the provisions of Article 8, paragraph 1 of the Tax Law, may enjoy treatment with respect to reductions of or exemptions from enterprise income tax shall submit to the local tax authorities for examination and verification of such circumstances as the lines of business in which engaged, the names of major products, and the period of operations decided upon. No treatment with respect to reductions of or exemptions from enterprise income tax shall be enjoyed without examination, verification and agreement thereof.

 Article 75: The "relevant provisions promulgated by the State Council before the entry into force of this Law" mentioned in Article 8, paragraph 2 of the Tax Law refer to the following provisions with respect to exemptions from or reductions of enterprise income tax promulgated or approved for promulgation by the State Council:

 1. Sino‑foreign equity joint ventures engaged in port and dock construction where the period of operations is 15 years or more shall, following application by the enterprise and approval thereof by the tax authorities of the provinces, autonomous regions, or municipalities directly under the Central government where the enterprise is located, and commencing with the first profit‑making year, be exempt from enterprise income tax from the first year to the fifth year and subject to enterprise income tax at a rate reduced by one half for the sixth year through the tenth year.

 2. Enterprises with foreign investment established in the Hainan Special Economic Zone and engaged in infrastructure facility projects such as airports, harbors, docks, highways, railways, power stations, coal mines and water conservation, and enterprises with foreign investment engaged in the development of and operations in agriculture where the period of operations is 15 years or more shall, following application by the enterprise and approval thereof by the tax authorities of Hainan Province and commencing with the first profit making year, be exempt from enterprise income tax from the first year to the fifth year and subject to enterprise income tax at a rate reduced by one half for the sixth year through the tenth year.

 3. Enterprises with foreign investment established in the Pudong New Area of Shanghai and engaged in construction projects such as airports, ports, railways, highways and power stations where the period of operations is 15 years or more shall, following application by the enterprise and approval thereof by the tax authorities of the municipality of Shanghai and commencing with the first profit‑making year, be exempt from enterprise income tax from the first year to the fifth year and subject to enterprise income tax at a rate reduced by one half for the sixth year through the tenth year.

 4. Enterprises with foreign investment established in the special economic zones and engaged in service‑oriented industries where the amount of the foreign investment exceeds US$5 million and the period of operations is ten years or more shall, following application by the enterprise and approval thereof by the tax authorities of the special economic zone and commencing with the first profit‑making year, be exempt from enterprise income tax in the first year and subject to enterprise income tax at a rate reduced by one half for the second and third years.

 5. Financial institutions such as foreign capital banks and Sino‑foreign banks established in the special economic zones and other areas approved by the State Council where the capital contribution of the foreign investor or the funds for business activities allocated by the head office bank to the branch bank exceeds US$1 0 million and the period of operations is ten years or more shall, following application by the enterprise and approval thereof by the local tax authorities and commencing with the first profit‑making year, be exempt from enterprise income tax in the first year and subject to enterprise income tax at a rate reduced by one half for the second and third years.

 6. Sino‑foreign equity joint ventures recognized as high or new technology enterprises and established in the State high or new technology industrial development zones designated by the State Council where the period of operations is ten years or more shall, following application by the enterprise and approval thereof by the local tax authorities and commencing with the first profit‑making year, be exempt from enterprise income tax in the first year and second year. Enterprises with foreign investment established in the new technology industrial development experimental zone of the municipality of Beijing shall be governed by the preferential tax provisions of the new technology industrial development experimental zone of the municipality of Beijing.

 7. Export‑oriented enterprises invested in and operated by foreign businesses for which in any year the output value of all export products amounts to 70% or more of the output value of the products of the enterprise for the year may pay enterprise income tax at the tax rate specified in the Tax Law reduced by one half after the period of enterprise income tax exemptions or reductions has expired in accordance with the provisions of the Tax Law. However, export oriented enterprises in the special economic zones and economic and technological development zones and other such enterprises subject to enterprise income tax at the tax rate of 15% that qualify under the above‑mentioned conditions shall pay enterprise income tax at the tax rate of 10%.

 8. Advanced technology enterprises invested in and operated by foreign businesses that remain advanced technology enterprises after the period of enterprise income tax exemptions or reductions has expired in accordance with the provisions of the Tax Law may continue to pay, for an additional three years, enterprise income tax at the tax rate specified in the Tax Law, reduced by one half.

 9. Implementation of other provisions with respect to exemptions from or reductions of enterprise income tax promulgated or approved for promulgation by the State Council.

 Enterprises with foreign investment shall, in applying for exemptions from or reductions of enterprise income tax in accordance with the provisions of Items 6, 7 or 8 of the preceding paragraph, submit relevant documents of proof issued by departments with respect to examination, verification and confirmation. The application shall be subjected to approval by the local tax authorities after examination and verification.

 Article 76: The "first profit‑making year" mentioned in Article 8, paragraph 1 of the Tax Law and in Article 75 of these Rules refers to the first tax year in which profits are obtained by an enterprise following commencement of production or business operations. Where an enterprise suffers losses during the early stages after establishment, such losses may be made up by the income of the following tax year in accordance with the provisions of Article I I of the Tax Law. The first profit‑making year shall be the year in which profits are obtained after such losses are made up.

 The period for exemptions from or reductions of enterprise income tax specified in the first paragraph of Article 8 of the Tax Law and Article 75 of these Rules shall be computed continuously commencing with the year in which the enterprise begins to make profits. The computation shall not be deferred because of losses incurred in any of the subsequent years.

 Article 77: Enterprises with foreign investment that commence operations in the middle of a year and earn profits may, where the actual period of operations is less than six months, choose to use the following year as the period in which to begin the computation of tax exemptions or tax reductions; however, income tax shall be paid in accordance with the Tax Law on profits earned during the year.

 Article 78: Unless otherwise provided by the State Council, the preferential tax provisions of Article 8, paragraph 1 of the Tax Law shall not apply to enterprises engaged in the exploitation of such natural resources as petroleum, natural gas, rare metals and precious metals.

 Article 79: Enterprises with foreign investment that have received exemptions from or reductions of enterprise income tax pursuant to the provisions of Article 8, paragraph I of the Tax Law and Article 75 of these Rules shall, where the actual period of operations is less than the period stipulated therein, except in the case of major losses sustained due to natural disasters or unforeseen accidents, make up the amount of the exemptions from or reductions of enterprise income tax.

 

Article 80: The "direct reinvestment" mentioned in Article 10 of the Tax Law refers to profits received from an enterprise with foreign investment by foreign investors of that enterprise that, prior to receipt, are directly used to increase registered capital, or that following receipt are directly used to organize another enterprise with foreign investment.

 Foreign investors shall, in computing the amount of tax refundable in accordance with the provisions of Article 10 of the Tax Law, provide certificates confirming the use of the reinvested profits for the year; the local tax authorities shall adopt any reasonable method for the reckoning and determination thereof where certificates cannot be provided.

 Foreign investors shall, with respect to the application for a refund of tax, submit within one year of the date of the actual investment of the reinvested amount a record of the reinvested amount and a certificate for the investment period of the increased capital or contributed capital to the tax authorities in the place where the taxes were originally paid.

 Article 81: The "other preferential provisions of the State Council" mentioned in Article 10 of the Tax Law refer to direct reinvestment in China by foreign investors for the organization and expansion of export‑oriented enterprises or advanced technology enterprises, as well as the profits of foreign investors earned from enterprises established in the Hainan Special Economic Zone that are directly reinvested in the Hainan Special Economic Zone in infrastructure projects and agriculture development enterprises and for which the entire portion of enterprise income tax that has already been paid on the reinvested amount may, in accordance with the provision of the State Council, be refunded.

 Foreign investors that apply for a refund of tax on reinvestments in accordance with the provisions of the preceding paragraph shall, in addition to completing the requirements pursuant to Article 80, paragraphs 2 and 3 of these Rules, submit certificates issued by the examining, verifying and confirming departments confirming the organization and expansion of exportoriented enterprises or advanced technology enterprises.

&nbspEnterprises in which foreign investors have reinvested with respect to the organization or expansion thereof that within three years of commencing production or operations have not achieved the standards with respect to export‑oriented enterprises or have not continued to be confirmed as advanced technology enterprises shall repay 60% of the amount of tax refunded.

 Article 82: The 'lax refunds on reinvestments" mentioned in Article 10 of the Tax Law and Article 81, paragraph 1 of these Rules shall be computed according to the following formula:

 Amount of tax refund = Reinvestment amount ’­[1 ‑(originally applicable enterprise income tax rate +local income tax rate)] ’­ originally applicable enterprise income tax rate ’­ tax refund rate.

 Chapter VII

 Tax Credits

 Article 83: The "income tax already paid abroad" mentioned on Article 12 of the Tax Law refers to income tax actually paid abroad by an enterprise with foreign investment on income from sources outside China and does not include taxes paid for which compensation is later received or assumed by other parties.

 Article 84: The "amount of tax payable computed on income from sources outside China in accordance with the provisions of this Law" mentioned in Article 12 of the Tax Law refers to the amount of tax payable computed on taxable income arising from income from abroad of enterprises with foreign investment, following the deduction of costs, expenses and losses allowable in accordance with the relevant provisions of the Tax Law and these Rules attributable to that income. The limit of the amount of tax payable that can be deducted shall be computed on a country‑by‑country basis; the method of computation is as follows:

 Limit on deduction of the amount of tax payable from foreign sources = (total tax payable on total domestic income and income from abroad in accordance with the Tax Law) x (income from abroad) ’­ (total amount of domestic and foreign income)

 Article 85: Where the amount of income tax actually paid abroad on income from sources from abroad by enterprises with foreign investment is less than the deductible limit resulting from computation based on the provisions of Article 84 of these Rules, the actual amount of income tax paid abroad may be deducted from the amount of tax payable; where the deductible limit is exceeded, the portion in excess shall not be deducted from the tax and shall not be itemized as an expense; however, the portion not exceeding the limit thereof may be used as a deduction against following year's taxes; the time limit for such supplemental deductions shall not exceed five years.

 Article 86: The provisions of Article 83 to Article 85 of these Rules shall apply only to enterprises with foreign investment with head offices established within China. Enterprises with foreign investment that deduct taxes in accordance with the provisions of Article 12 of the Tax Law shall provide the original tax payment certificates signed and issued by the foreign tax authorities with respect to the same year; copies or tax payment certificates of different years shall not be used as tax deduction certificates.

 Chapter VIII

Tax Administration

 Article 87: Enterprises shall, within 30 days of completing business registration, complete tax registration with the local tax authorities. Enterprises with foreign investment that establish or terminate branch offices outside China shall, within 30 days of the date of establishment or termination thereof, complete with the local tax authorities procedures with respect to tax registration, amendments to the registration, or cancellation of the registration. Enterprises must complete registrations, present relevant documents, licenses and materials.

 Article 88: Enterprises that undergo important registration changes such as changes of address, restructurings, mergers, spin‑offs, terminations, as well as changes in the amount of capital and scope of business shall, within 30 days of the completion of the change in business registration or prior to the cancellation of registration, complete the change in registration or cancellation of registration with the local tax authorities with the relevant documents.

 Article 89: Foreign enterprises that establish two or more business organizations in China may use one of the selected business organizations with respect to the consolidated filing and payment of income tax. However, the business organization so selected shall meet the following conditions:

 1. Assumption of supervisory and management responsibility for the business operations of the other respective business organizations;

 2. Maintenance of complete account records and certificates that accurately reflect the income, cost, expenses and profit and loss situations of the respective business organizations.

 Article 90: With respect to foreign enterprises that in accordance with the provisions of Article 89 of these Rules consolidate the filing and payment of income tax, the business organization so selected there under shall submit an application for approval according to the following provisions after examination and verification by the local tax authorities:

1. Consolidated filing and payment of income tax with respect to business organizations located in the same province, autonomous region, or municipality directly under the Central Government shall be subject to approval by the tax authorities of that province, autonomous region or municipality directly under the Central Government;

 2. Consolidated filing and payment of income tax with respect to business organizations located in two or more provinces, autonomous regions, or municipalities directly under the Central Government shall be subject to approval by the State Tax Bureau.

 Following approval for the filing and payment of tax on a consolidated basis by foreign enterprises, such circumstances as the establishment of additional business organizations, mergers, change of address, termination of operations, or shutdowns shall, prior to such event, be reported to the local tax authorities by the business organization responsible for the filing and payment of tax on a consolidated basis. Any change with respect to the business organization filing and paying tax on a consolidated basis shall be dealt with in accordance with the provisions of the preceding paragraph.

 Article 91: Where business organizations related to foreign enterprises that file and pay income tax on a consolidated basis apply different tax rates with respect to the payment of tax, the amount of taxable income of the respective business organizations shall be separately computed on a reasonable basis and income tax shall be paid on the basis of the different tax rates.

 Where the respective business organizations mentioned in the preceding paragraph have losses and profits, tax shall be paid on the profit remaining after the offsetting of losses against profits according to the tax rate applicable to the profit‑making business organization. A business organization that incurs losses shall offset losses using profits of the subsequent year of the business organization; tax shall be paid on the profit remaining after the offsetting of such losses according to the tax rate applicable to the business organization; tax paid on the offsetting amounts shall be based on the tax rate applicable to the business organization that offsets the losses incurred by the other business organization.

 Article 92: Notwithstanding the provisions of Article 91 of these Rules, where a business organization responsible for filings and payment of tax on a consolidated basis is unable to separately and reasonably compute the taxable income of its separate business entities, local tax administrations can allocate the taxable income among the business entities based on the proportion of cost and expenses, the proportion of capital assets, and the proportion of the number of staff or salaries and wages.

 Article 93: Enterprises with foreign investment that establish branch offices in China shall complete consolidated fillings and payment of income tax with reference to the provisions of Article 91 and Article 92 of these Rules.

 Article 94: Enterprises that pay taxes in advance on a quarterly basis in accordance with the provisions of Article 15 of the Tax Law shall pay in advance on the basis of actual quarterly profits; where difficulty exists in paying in advance on the basis of actual quarterly profits, the advanced quarterly payment of tax may be made according to one‑fourth of the taxable income of the previous year or any other method approved by the local tax authorities.

 Article 95: Enterprises, whether realizing profits or losses in a tax year, shall file income tax returns and final statements of account with the local tax authorities within the time limit prescribed in Article 16 of the Tax Law, and unless otherwise provided by the State, shall include when filing the final accounting statement an audit statement of a certified public accountant registered in China.

Where, for special reasons, an enterprise cannot file an income tax return and final accounting statement within the period prescribed in the Tax Law, an application shall be submitted within the filing period and, upon approval of the local tax authorities, the filing period may be extended appropriately.

 Article 96: Final accounting statements submitted by branches or business organizations to head offices or business organizations that file and pay income tax on a consolidated basis shall be submitted at the same time to the local tax authorities.

 Article 97: Enterprises that are merged, spun‑off, or terminated during the year shall, within 60 days of the termination of production or business operations, complete with the local tax authorities procedures for the settlement of any liability for and payment of income tax, with refunds for overpayments or supplementary payments for deficiencies.

 Article 98: Enterprises that must complete procedures for tax refunds in the case of overpayments of tax may, where income on foreign currency has already been converted into renminbi according to the foreign exchange rate, convert the amount of the tax in renminbi to be refunded into foreign currency according to the exchange rate in effect when the tax was originally paid, and then reconvert this amount of foreign currency into renminbi according to the foreign exchange rate at the date of issuance of the tax refund certificate. Where it is necessary to complete procedures for supplementary tax payments in the case of underpayments of tax, the amount of supplementary tax payments shall be converted into renminbi according to the foreign exchange rate at the date of issuance of the certificate for supplementary tax payments.

 Article 99: Enterprises with foreign investment that undergo liquidation shall, prior to the completion of the cancellation of business registration, complete the filing of income tax returns with the local tax authorities.

 Article 100: Except as otherwise provided by the State, enterprises shall maintain in China accounting vouchers, books and statements that support the correct computation of taxable income.

 Accounting vouchers, books and statements, and reports of enterprises shall be completed in the Chinese language or completed in both the Chinese language and a foreign language.

 Enterprises that use electronic computers for the purposes of bookkeeping shall treat the accounting records in computer storage or in printed form as account books. All records on magnetic tape and diskette that have not been printed out shall be completely retained.

 Accounting vouchers, books and statements, and reports of enterprises shall be retained for at least 15 years.

 Article 101: Invoices and certificates of receipts of enterprises shall be subjected to approval by the local tax authorities prior to printing and use.

 Administrative measures with respect to the printing and use of invoices and certificates of receipts of enterprises shall be formulated by the State Tax Bureau.

 Article 102: All enterprise income tax returns and certificates of tax payments shall be printed by the State Tax Bureau.

 Article 103: If the final day of the period for payment of tax and the period for filing of a tax return falls on a Sunday or a legal holiday, the day following the holiday shall be used as the last day of the period.

Article 104: Tax authorities may pay withholding agents, as specified in Article 19, paragraph 2 of the Tax Law and Article 67 of these Rules, a handling fee based on a certain proportion of the amount of tax withheld; the specific methods shall be formulated by the State Tax Bureau.

 Article 105: Local tax authorities may, according to the seriousness of the case, impose a fine of RMB 5,000 (US$605) or less on taxpayers or withholding agents that refuse to accept examination by the tax authorities in accordance with the relevant provisions, or that refuse to pay late payment penalties within the time limit prescribed by the tax authorities.

 Article 106: The tax authorities may, according to the seriousness of the case, impose a fine of RMB 5,000 or less on an enterprise that violates the provisions of Article 87; Article 90, paragraph 2; Article 95; Article 96; Article 97; Article 99; Article 100 and Article 101 of these Rules.

 Article 107: The "tax evasion" mentioned in Article 25 of the Tax Law refers to the illegal actions of a taxpayer who has intentionally violated the provisions of the Tax Law such as by: falsifying, altering or destroying account books, receipts or accounting vouchers; falsely itemizing or overstating costs and expenses; concealing or understating taxable income or receipts; or avoiding taxes or fraudulently recovering taxes already paid.

 Article 108: The tax authorities shall, in punishing taxpayers or withholding agents in accordance with the provisions of the Tax Law and these Rules, serve notice of contravention.

 Article 109: Any entity or individual shall have the right to report a failure to comply with the Tax Law and the violators thereof. The tax authorities shall maintain confidentiality for informants and award them in accordance with the relevant provisions herein.

&nbspChapter IX

 Supplementary Provisions

 Article 110: Enterprises with foreign investment that completed business registration prior to the promulgation of the Tax Law may, with respect to the payment of income tax in accordance with the provisions of the Tax Law and where the liability for tax is higher than that prior to the entry into force of the Tax Law, use the original applicable tax rate during the approved period of operations.

 Where there is no established period of operations, income tax may be paid using the original applicable tax rate for five years commencing on the date of the entry into force of the Tax Law. However, with respect to the above‑mentioned period, if during a tax year the tax liability is higher than that stipulated in the Tax Law, income tax shall be paid commencing with that tax year according to the tax rate stipulated in the Tax Law.

 Article Ill: Preferential treatment in terms of exemptions from and reductions of enterprise income tax enjoyed pursuant to the laws and administrative rules and regulations prior to the entry into force of Tax Law by enterprises with foreign investment that completed business registration prior to the promulgation of the Tax Law may continue to remain in effect until the termination of the period of exemptions and reductions.

 Enterprises with foreign investment that completed business registration prior to the promulgation of the Tax Law but that have not earned profits or have earned profits for less than five years may, in accordance with the provisions of Article 8, paragraph I of the Tax Law, be granted a corresponding period of treatment with respect to exemptions from or reductions of enterprise income tax.

 Article 112: Enterprises with foreign investment that completed business registration after the promulgation of the Tax Law but prior to the entry into force of the Tax Law may refer to the provisions of Articles 110 and 111 of these Rules for implementation herein.

 Article 113: The Ministry of Finance and the State Tax Bureau shall be responsible for the interpretation of these Rules.

 Article 114: These Rules shall come into force on the effective date of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises. The Detailed Rules For The Implementation Of The Income Tax Law Of The People's Republic Of China Concerning Sino‑Foreign Equity Joint Ventures and the Detailed Rules For The Implementation Of The Income Tax Law Of The People's Republic Of China For Foreign Enterprises shall be abrogated at the same time.