China Law Online Database : novexcn.com

You are using Guest Account

Subscribe To This Law Only

Subscribe To All Law Contents

Print This Page

Back




	NOTICE OF THE STATE ADMINISTRATION OF TAXATION ON HANDLING TAX ISSUES RELATING TO SERVICES PROVIDED BY FOREIGN-FUNDED INVESTMENT COMPANIES TO THEIR SUBSIDIARY COMPANIES

	(No.128 [2002] Guo-Shui-Fa promulgated on September 28, 2002 which shall come into force as of January 1, 2003)


SUBJECT : TRANSFER PRICING; SERVICES PROVIDED BY FOREIGN-FUNDED INVESTMENT COMPANIES TO SUBSIDIARIES
ISSUING DEPARTMENT : STATE ADMINISTRATION OF TAXATION
ISSUE DATE : 09/28/2002
IMPLEMENT DATE : 01/01/2003
LENGTH : 803 words
TEXT :

In accordance with the relevant provisions of the Law of the People's Republic of China on the Administration of Tax Collection, the Law of the People's Republic of China on Income Tax of Foreign-funded Enterprises and Foreign Enterprises and the Interim Regulations of the People's Republic of China on Business Tax, the following notice is hereby made concerning the handling of taxation issues relating to the services provided by foreign-funded enterprises especially engaged in investment business (hereinafter referred to foreign-funded investment companies) to their subsidiary companies:

I. A foreign-funded investment enterprise shall collect fees or charges for the services it provides to its subsidiary companies as for services between independent enterprises, if it fails to do so, the tax authorities have the right to make adjustment.

II. A foreign-funded investment enterprise and its subsidiary company, to which it provides the service, shall sign a service contract, expressly stipulating the contents and charging standard, of the service provided. The foreign-funded investment enterprise shall declare and pay the business tax and enterprise income tax for the proceeds it derives from the service it provided.

III. Where a foreign-funded investment enterprise provides the same kind of service to several subsidiary companies of it, and there is no separate contracts on service charges to determine the charging standards, whereas the total amount of charges for that service is determined on the basis of the expenses actually occurring, and the amount payable by each subsidiary company is determined by proportionate allocation, the following provisions shall be observed:

(1) The actual expenses occurring for the service shall be gathered and calculated accurately and rationally;

(2) The total amount of charges for that service shall be calculated according to the following formula:

Total service charges = actual expenses/(1-business tax rate-approved profit rate)

With regard to the approved profit rate used in the aforesaid formula, a rate of 5% shall be approved if the service is provided to domestic subsidiary companies; and if the service is provided to overseas subsidiary companies, the rate may be not bound by this limit;

(3) The proportion of charges shared by the subsidiary companies may be determined according to the figures such as total investment, registered capital, sales income and assets of the subsidiary companies that accept the service. The aforesaid figures may not be altered freely once determined. If alteration is needed for special causes, it shall be reported to the tax authority in charge of the foreign-funded investment company for approval; and

(4) The name, charging standard and specific amount of the service project shall be notified to the subsidiary companies by written form. The subsidiary companies shall pay the charges on the basis of the notification, and the paid amount shall be deducted in the calculation of taxable income.

IV. The investment expenses and losses occurring when a foreign-funded investment company makes investment in its subsidiary companies, such as investment decision, investment interest, salaries of investment managerial personnel and office expenses, may not be deducted from the taxable income of the foreign-funded investment company as business expense and losses, neither may such expenses and losses be shared by its subsidiary companies.

The foreign-funded investment company shall separately gather and calculate its investment expense and losses, among which, if the calculated investment expenses are lower than the amount calculated according to the following formula, the amount shall be determined according to the following formula:

Investment expenses = Total expenses of the investment company x Investment proceeds/ (Business income x 5 + Investment proceeds )

The aforesaid investment proceeds shall refer to the proceeds a foreign-funded investment company derives from its subsidiary companies, and shall not include the investment losses. Business income shall refer to the total income of the foreign-funded investment company obtained through various services, and shall not include investment proceeds.

V. Where a foreign-funded investment company signs a contract with any other enterprise on behalf of its subsidiary company and accepts services from the said company jointly with its subsidiary company, if the foreign-funded investment company pays in advance the service charges for its subsidiary company (hereinafter referred to pre-paid charges) and later recovers such charges from the subsidiary company, the charges shall not be calculated as the income of the foreign-funded investment company in calculation of the business tax to be paid.

The foreign-funded investment company may, according to the proportion prescribed in Item (3) of Article 3 of this Notice, recover the aforesaid pre-paid charges, by cost allocation, from the subsidiary company that accepted the services; and shall also issue a written notice when recovering the pre-paid charges pursuant to Item 4) of Article 3 of this Notice.

VI. A foreign-funded investment company may not collect or allocate any administrative fees to its subsidiary companies by any means.

VII. This notice shall be put into implementation on January 1, 2003.