Circular on Issues Concerning Foreign Income Tax Credit of Enterprises
Tax〔2009〕No.125

On December 25, 2009, Ministry of Finance and State Administration of Taxation indicated below the relevant issues concerning that the foreign income tax paid or burdened shall be offset when the foreign income tax of enterprises need to be collected:
Core Contents:

• Enterprise which can not accurately calculate the actual credit amount of foreign income tax by country, tax revenues from corresponding countries shall not be offset in the current taxable amount of the enterprise, and shall not be offset annually after settlement and transfer.

• All foreign revenues from branches that established by resident enterprises abroad without independent tax payment status (whether remit to the domestic or not), shall be counted into foreign tax payables in the tax year of the enterprise.

• Revenues earned by resident enterprise from countries (or regions) who enter into the tax agreement with our government shall enjoy the privilege of tax free or tax deduction pursuant to tax rules of the country (or the region), and according to the regulations in the tax agreement, the amount of tax free or tax deduction, which shall offset tax payables in china, can be taken as foreign income tax paid by enterprises to offset tax revenues.

• The income tax credit limitation of a country = Total tax payables of domestic and foreign revenues calculated pursuant to Enterprise Income Tax Law and the implementing rules * Revenues of tax payables from a country / Total tax payables of domestic and foreign revenues.

• The actual tax payables of an enterprise = Total tax payables of domestic and foreign revenues - Corporate income tax relief and tax credit - Foreign income tax credit amount.

• Without independent tax payment status, means it does not have independent legal person status according to regulations of the enterprise, or it is not recognized as taxpayers of each other’s country (region) pursuant to regulations in the tax agreement.

Effective from January 1, 2008

Circular on Issues Concernig Collection of Individual Income Tax on Individuals’ Transfer of Restricted Shares of Listed Companies
Tax〔2009〕No. 167

On December 31, 2009, Ministry of Finance, The State Administration of Taxation and The SFC indicated below on the issue concerning collection of individual income tax on individuals’ transfer of restricted shares of listed companies, so as to further improve relevant systems established after completing reform of non-tradable shares, to leverage on tax adjustment function to high-income group and to promote a steady and healthy development of capital market in the long run:
Core Contents:

• As for incomes obtained from restricted shares transferred by an individual, the personal income tax shall be collected at the applicable tax rate of 20% based on “property transfer income”.

• In relation to restricted shares transferred by an individual, the income from tax payables equals to the remaining amount after revenues from transferring restricted shares each time less off the original value of the stock and appropriate tax payment.

• Personal income from restricted shares transfer requires the owner of the restricted shares to be taxpayer, the security institutions in which personal shareholders opened account to be the withholding agent.

• As for the taxpayer who holds restrict shares and its tradable shares at the same time, the personal income tax shall be collected on his income from stock transfer in accordance with the priority rule of restrict shares, namely stock transfer is recognized as transferring restrict shares at first.

• As for the personal income tax on incomes from transferring stocks of listing company , which are obtained from public offering and transfer market of listed company, by individual in Shanghai Stock Exchange and Shenzhen Stock Exchange, the personal income tax shall continue to be exempted.

Effective from January 1, 2010

Circular on Releasing the Tax Investigation Rules
Guoshuifa (2009) No. 157

On December 24, 2009, in order to protect the implementation of tax laws and administrative regulations and to standardize tax audit, the State Administration of Taxation indicated “Tax Auditing Workflow” as follows:
Core Contents:

• Avoidance: If the tax inspectors are required to avoid, the head of Inspection Bureau shall determine whether there needs avoidance in accordance with law.

• Report: The reported situations are not detailed and contain no specific clues or include repetitive contents, it shall be left for handle temporarily.

• Inspection Document: The inspection shall be jointly undertaken by two or above inspectors, and shall produce tax inspection license and “Notice of Tax Inspection”.

• E-account: It is required to open the electronic information system, or provide copies coherent to the original electronic data and technical data of electronic information system. In case the targeted person refuses to open or provide information, proper technical approaches can be adopted upon the agreement of the head of inspection bureau, to conduct direct inspection to its electronic information system, or to conduct inspection by collecting or copy of its electronic data.

• Obtaining evidence: During investigating and obtaining evidence, evidence that violate other people’s legal rights shall not be acquired by photographing, recording, wire-tapping etc. Acquiring information through improper means such as inducement, fraud, coercion and violence is prohibited.

• Enquiry: In addition to making enquiry in the production and operation site of the person questioned, “Notice of Enquiry” should also be dispatched to the person questioned.

• Electronic evidence: For electronic data that needs to be fixed in a visible form, it should be copied to the storage medium and to be sealed along with the person who provide the electronic date, legal representative or financial person in charge of the unit, while at the same time, indicate on the sealed package the production method, production time, producer, file format and length, note “error-free with the electronic data recorded in the original carrier,” and bear signature and stamp by electronic date provider.

• Upon inquiring deposit accounts of production and operation taxpayers and withholding agent, it should make inquiry to the relevant bank or other financial institutions with “Check Deposit Account Permit” upon the approval of the head of affiliated taxation bureau.

• Upon inquiring saving accounts of suspected person of the case, it should obtain approval from the head of taxation bureau which is in the district above the city or autonomous region.

• The deadline of adopting tax protection measure shall not exceed 6 months. Upon investigating major illegal cases on taxation (included in one of the following circumstances), when it requires to extend its tax protection deadline, it should submit to the State Administration of Taxation level by level for approval.

• When completing the examination, the examining department should submit “Tax Investigation report”, “Manuscript of Tax Investigation” and relevant evidences to relevant department for trial and go through handover procedures within 5 working days.

• The examination should be completed within 60 days from the date of examining. It requires the approval of the head of tax investigation bureau if the examination period actually needs to be extended or the illegal tax activity of the targeted person has exceeded the investigation period.

• For the statements and defenses made by the targeted person or other tax-related parties, the trial staff should take them seriously and make judgment and opinion.

Effective from January 1, 2010

Issues on Promoting Information Network Management of Bank Deposits Debts of Processing Trade
General Administration of Customs (2010 )No.5

On January 20, 2010, In order to further simplify and improve the management of bank deposit accounting of the existing processing trade (hereinafter referred to as accounting ), to increase the number of banks that transact accounting procedures, to facilitate the accounting business of processing trade enterprises and to improve the quality and efficiency of accounting management, General Administration of Customs issued “Issues on Promoting Information Network Management of Bank Deposits Debts of Processing Trade” as follows:
Core Contents:

• Upon transacting the accounting establishment procedures, the enterprise should open a special account for cash deposit in the bank. When applying for filing of electronic mannual, the enterprise should select a bank intended to open an account for accounting in the section of recording customs handbook, and clarify the procedures of establishing an accounting account.

• In case the measures of tax payment guarantee are adopted for the account of cash deposit, the tax payment guarantee will automatically invalidate upon completing investigation of the case.

Effective from February 1, 2010

Notice on Releasing Procedures of Tax Registration Cancellation by Shenzhen Local Taxation Bureau

In order to further standardize the cancellation of tax registration, improve tax collection efficiency and to effectively reduce the pressure of taxpayer and workload of cadre of Taxation, Shenzhen Local Taxation Bureau has revised its “Cancellation of Tax Registration Rules by Shenzhen Local Taxation Bureau”.
Core Contents:

• The cancellation of tax should be followed from state tax to local tax. The state tax should be followed by local tax if the corporate income tax is controlled by State Taxation Bureau.

• Preliminary procedures of canceling tax registration: Settle taxes and hand in invoices. In case of pending case and pending matters, it should give priority to finish the case and complete the matters. For taxpayer who has assets to be transferred, it should firstly apply for transfer or cancellation.

• According to the enterprise type, cancellation can be divided into three procedures: simple, audit and inspection, and the applicable areas for each procedure should be clarified.

• The audit process of executing the tax cancellation should include random check of 20% of total tax identification reports provided by registered tax agent, and the taxpayers who are randomly checked shall transact cancellation according to the audit process. Registered tax agent shall be punished in case of low tax payment due to the false identification report, and taxation authorities of all levels shall not accept and hear tax identification report and tax agent business relating to this registered tax agent.

Execute since the date of publication on November 24, 2009.

Equities Cheaply Transferred by Individual Shareholders in Shenzhen May Possibly Undergo Verification Collection for Personal Income Tax
Source: 2010-02-05 website of Shenzhen Local Taxation Bureau

In the process of tracking an equity change business of an enterprise, the staff of Guangming New District Local Tax Bureau found out that the equity transfer price reported by the taxpayer is significantly lower, they also found out that the enterprise to be transferred is of profitability through further investigation and immediately connected the relevant personnel of the company, who proactively provided the concealed supplementary agreement. The taxpayer conducted low-cost equity transfer while the original shareholder took the initiative to pay the additional premium of around RMB 40 thousand in total.                On June 21, 2009, The State Administration of Taxation issued “Notice on Intensifying the Administration of Collection of Individual Income Tax on Incomes from Transfer of Equities” (guoshuihan [2009] No. 285), which requires the tax authorities to establish an internal control system to levy personal income tax on equity transfer, including:
Core Contents:

• Conduct door-to-door registration to controlling enterprises, input the information of individual shareholders into computer system to implement the dynamic management;

Investigated and Added Revenue in Reported Case by Shenzhen Local Taxation Bureau in 2009 Reached a New Record in History
Source: 2010-01-28 Shenzhen Local Taxation Bureau Website

On 2009, Shenzhen Local taxation system accepted 1015 reported cases, investigated 946 cases, audited revenue of 411million, which increased about 31% compared to 2008 and made a new record in history. As it further strengthened the investigation to illegal tax report cases, major breakthrough has been made on large and important case investigation. 25 cases recorded a revenue of more than 1 million from audit of the year, with a total revenue of 387 million, accounting for more than 94% of the total revenue of audit of the year.
Core Contents:

• Dining and entertainment industry, finance and insurance industry and construction and installation industry have revealed the characteristics of high concentration of audit revenue in industries.

• Business tax, corporate income tax and personal income tax are tax types with the most audit revenue, with a total of 191 million accounting for 87% of audit revenue.

• Half of the tax cases refer to invoice, accounting for 50% of reported case acceptance. Problems lies mainly in replacement of the invoice with receipt, the use of false invoice, the use of invoices not issued by this company or refuse to issue invoice, especially in invoice problems occurred in dining and entertainment industry.

Audited Revenue from 66 Enterprises in Shenzhen Fuyong Exceeds 10 Million
Source: 2010-1-21 Shenzhen State Taxation Website

To the end of 2009, Fuyong tax branch of State Taxation Bureau of Bao’an District successfully completed the tax payment assessment of corporate income tax of this year,and 66 enterprises cumulatively paid the revenue amount of 10.429 million yuan, plus surcharge for overdue payment of 751.2 thousand yuan.
Core Contents:

• Fuyong State Taxation Bureau attached great importance to the scientific and comprehensive nature of the assessment of cases. Before making the assessment, it conducted comprehensive analysis to the basic information, scale of production and operation, industry characteristics to look for an entry point;

• On the basis of ensuring the list of 40 enterprises for important assessment by Fuyong State Taxation Bureau, carefully analyzed the specific doubts about every tax related information, and finally ensured that157 enterprises participated in Collective Taxation Talk after selecting a list of unusual enterprises through collection and management system;

• After assessing corporate income tax liquidation data of relevant enterprises in 2008, the inspection team finally made important investigation to 66 enterprises which have unusual index.

Cases, which are selected by taxation authorities for investigation usually selected from enterprises that experienced unusual annual negative rate, therefore, enterprises should generally calculate their tax condition by the end of each year to make a conclusive analysis of each tax item, attach importance to the comparison of current tax burden and the tax burden stipulated by the local tax bureau and make proper adjustment in tax liquidation according to the actual discrepancy.

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This publication, organized by the Information Department of BM Intelligence Consultants (Shenzhen) Limited, is for reference only. Whether its contents apply to specific situations will depend on the particular circumstances. Readers should not rely on any information in this publication and to use it as a substitute for professional advice. Our Company does not assume any responsibility for any loss as a result of negligence or other reasons or the reliance on such information, no matter how the losses are caused.

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BM Intelligence Group (bmi)

BM Intelligence (bmi) was established in 1995, and was listed on the Hong Kong Stock Exchange in 2001.It became the first listed company in financial advisory filed in China. After listing, bmi rapidly added the assessment, funds, financial public relations, stock registration and other teams and set up BM Intelligence Group to provide customers with one-stop financial professional services.

The Group's head office is located in Hong Kong and supported by branch offices in Shenzhen, Shanghai, Beijing, Quanzhou, Xiamen, Guangzhou, Chengdu and other areas, with more than 200 professionals. We can integrate the resources and strengths of the Group quickly to provide customers with comprehensive, one-stop, professional services in the financial field, which include investment and financing consultancy, tax management and planning advise, corporation secretary & tax agency, professional translations, funds & wealth management, stock registration, real estate agency, financial PR, project management, marketing strategy and promotion, financial planning, information technology and related business in China. Meanwhile, the Group cooperates with associates and close partners in China to provide customers with the evaluation, auditing and capital verification services of the professional agents under the Chinese standards and international standards.
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As a wholly owned subsidiary of bmi, bmi Shenzhen is responsible for the Group's businesses in China. We are based in mainland China, relying on the Group's international background, depending on a strong team of professionals and business network to provide customers with a one-stop professional services in the financial field, including company secretaries, tax advisers, investment and financial consultancy, translation services and statutory authentication and other supporting services. Since its establishment, it has contributed to dozens of companies from home and abroad to complete integration and acquisition of corporate assets; successfully assisted more than 30 enterprises to list and finance overseas; provided one-stop service for dozens of overseas clients to invest in China; provided one- stop service for hundreds of domestic customers to invest overseas. We comprehensively analyze the geographic and industry factors to provide customers with the best solution to help customers achieve their development goals.

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