The national and local taxation bureaus of all provinces， autonomous regions， municipalities directly under the Central Government， and cities specifically designated in the state plan ：
　　In order to implement the Decision of the State Council on Canceling and Adjusting the Third Group of Administrative Approval Items （Guo Fa [2004] No. 16 ）， we hereby give our circular as follows regarding the follow-up management issues after canceling or delegating some taxation administrative examination and approval items relating to foreign-funded enterprises， foreign enterprises （hereinafter referred to as enterprises） and foreign individuals， which is prescribed in the Document Guo Fa [2004] No. 16：
　　I. The follow-up administration after canceling the procedures of examination and approval on consolidated calculation and payment of enterprise income tax of non-legal person Chinese-foreign cooperative joint venture enterprises
　　According to Article 7 of the Detailed Rules for the Implementation of the Income Tax Law of the People's Republic of China for Foreign-funded Enterprises and Foreign Enterprises （hereinafter referred to as the Detailed Rules for the Implementation of the Tax Law）， a non-legal person Chinese-foreign cooperative joint venture enterprise may apply to the local taxation organ for the approval of consolidated calculation of the payable income tax according to the Tax Law. After the above mentioned application and approval procedures have been cancelled， if the articles of association of any enterprise have prescribed such joint venture methods as joint operation， consolidated accounting， sharing profits， losses and investment risks， etc.， and the enterprise does adopt these methods， the enterprise may decide whether to file the consolidated income tax returns for the enterprise on its own. If any enterprise decides to pay its enterprise income tax in a consolidated way， it shall， when filing the annual income tax return to the competent taxation organ for the first time， attach such documents as its articles of association， the relevant resolution made by both the Chinese and foreign parties on the consolidated return and payment of enterprise income tax. The competent taxation organ shall， after accepting the tax return， review whether the enterprise meets the conditions for consolidated return and payment. If the enterprise meets the prescribed conditions， the competent taxation organ shall ratify it， and grant the corresponding taxation treatment according to the Circular of the State Administration of Taxation on Implementing Measures on Some Issues concerning Income Tax of Foreign-funded Enterprises and Foreign Enterprises （Guo Shui Fa [1991] No. 165）。 If， however， upon review by the competent taxation organ， the enterprise fails to meet the conditions for consolidated return and payment of tax， the competent taxation organ shall notify all parties to the cooperation to separately file new tax returns for payment.
　　II. The follow-up administration after canceling the procedures of examination and approval on change of depreciation methods by enterprises
　　According to Article 34 of the Detailed Rules for the Implementation of the Tax Law， the straight-line method shall be used as the depreciation method of the fixed assets of an enterprise. If the enterprise needs to adopt any other depreciation method， it shall submit an application to the local taxation organ for examination， and the application shall be reported to the State Administration of Taxation level by level for approval. After the above-mentioned examination and approval procedures have been cancelled， the enterprise shall， in principle， keep the stability of the existing depreciation method for the fixed assets which have been put to use. With respect to the newly purchased fixed assets， and the fixed assets which have been put to use and depreciated in a method prescribed in the Tax Law， if they really need to adopt or switch to a method other than those prescribed in the Tax Law for calculating the depreciation， the enterprise may determine the method on its own， and shall， when filing its annual income tax return in the first tax year after such fixed assets have been put to use or the depreciation method has been adopted or changed， attach the documents on the adopted or changed method for depreciation of the fixed assets， the specific duration and the reasons thereof， etc. The competent taxation organ shall demonstrate the above documents submitted by the enterprise， and carry out on-site surveys when necessary. The competent taxation organ shall have the power to make adjustments， if the reasons in the documents are insufficient or the facts in the documents are untrue， and maintain the depreciation method prescribed in the Tax Law.
　　III. The follow-up administration after canceling the procedures of examination and approval on bad debt losses of enterprises
　　According to Article 25 of the Detailed Rules for the Implementation of the Tax Law， if an enterprise actually suffers from bad debt losses from its accounts receivable， which must be verified and ratified by the local taxation organ. After the above mentioned verification and ratification procedures have been cancelled， the enterprise's accounts receivable may， if the conditions prescribed in Article 26 of the Detailed Rules for the Implementation of the Tax Law are met， be deemed as its bad debt losses， and be deducted at the time of calculating its taxable income. The enterprise shall， when submitting the quarterly or annual enterprise income tax return， make additional statement on the reasons for the currently deducted bad debt losses and provide effective proving materials. The competent taxation organ shall， when verifying and *uating the tax return， carefully verify the above documents submitted by the enterprise according to the relevant prescribed conditions for handling tax issues concerning bad debt losses， and shall carry out on-site surveys on the tax returns with insufficient reasons and unclear facts to understand and verify the truth. When necessary， it may require the enterprise to provide new evidence， offer explanations or have them notarized. The competent taxation organ shall make tax payment adjustment on the enterprise whose deducted bad debt losses fail to meet the prescribed conditions， or who is unable to provide proving materials.
　　IV. The follow-up administration after canceling the procedures of examination and approval of the management fee of the head office listed by a foreign enterprise as expenditure
　　According to Article 25 of the Detailed Rules for the Implementation of the Tax Law， if a foreign enterprise sets up an office or premises in China， it shall provide the relevant proving documents on the reasonable management fee related to the office or premises， which is paid to the head office. Such management fee may be permitted to be listed as expenditure upon the verification and approval of the local taxation organ. After the above-mentioned verification and approval have been cancelled， if a foreign enterprise that has set up an office or premises in China lists its head office's management fee as its expenditure， it must submit the proving documents provided by the head office on the combined scope， total amount， basis and method of amortization， etc. of the management fee， and attach the report of a registered accountant on verification of the above proving documents. The competent taxation organ shall， when examining and *uating the tax return， verify the enterprise's proving documents according to the relevant provisions in the Tax Law. In case the proving documents are incomplete and unable to explain the rationality for listing the management fee as expenditure， the competent taxation organ shall notify the enterprise to supplement the proving documents within a time limit. If the enterprise does not conform to the prescribed requirements， or is unable to provide effective proving documents， the competent taxation organ shall have the power to make taxation adjustments accordingly. Branches of a foreign bank shall list the management fee of the head office as the expenditure abiding by strictly the Circular of the State Administration of Taxation concerning the Relevant Issues on Amortization by Foreign Banks' Branches of the Management Fee of the Head Office （Guo Shui Han [2002] No. 11）。
　　V. The follow-up administration after canceling the procedures of examination and approval of carrying forward of exploration expenses by foreign petroleum companies between contractual areas for exploitation in oil （gas） fields
　　According to Article 48 of the Detailed Rules for the Implementation of the Tax Law， if a foreign petroleum company terminates its operation in its own contractual area due to finding no commercial oil （gas） field， and is no longer a party to the contract on exploitation of oil （gas） resources， nor does it reserve its management office inside China， the reasonable exploration expenses it has invested in the terminated area may， after being verified， confirmed and testified by the taxation organ， be permitted to be amortized among the production income of its new contractual area on condition that the company concludes a new contract on cooperative exploitation of oil （gas） resources within ten years as of termination of the original contract. After the procedures of verification and confirmation have been cancelled， if the above-mentioned exploration expenses of a foreign petroleum company need to be amortized in the new contract on future cooperative exploitation of oil （gas） resources， the foreign petroleum company must reserve the original accounts and documents on relevant exploration expenses. If the foreign petroleum company is indeed unable to reserve the relevant documents due to sufficient reasons， it may， within one year as of terminating the pre-stage contract， ask the competent taxation organ to pre-audit and confirm the exploration expenses to be amortized in the future new contract area as mentioned above.
　　VI. The follow-up administration after canceling the procedures of examination and approval of regular deduction or exemption of taxes of Chinese-foreign equity joint venture hi-tech enterprises
　　According to Paragraph （6） of Article 75 of the Detailed Rules for the Implementation of the Tax Law， if the duration of operation of a Chinese-foreign equity joint venture enterprise established in a national hi-tech industry development zone and determined as a hi-tech enterprise is more than ten years， the said enterprise may， if approved by the local taxation organ after filing the application， be exempt from enterprise income tax in the first and second years starting from the year when it begins to make profits. After the above mentioned procedures of examination and approval has been cancelled， if the operational duration of any Chinese-foreign equity joint venture enterprise established in a national hi-tech industry development zone and ascertained by the relevant authority as a hi-tech enterprise is more than ten years， it may be exempt from enterprise income tax in the first and second years. The enterprise shall， when filing the annual income tax return during the year of the said exemption， attach its certificate of having been determined as a hi-tech enterprise and business license， etc. The competent taxation organ shall， when examining and *uating the tax return， strictly verify the duration of the enterprise's certificate， the duration of operation indicated in its business license， and shall carry out on-site surveys， and verify whether the actual situation conforms to the ascertained hi-tech conditions. In case any ascertained certificate is in error， the competent taxation organ shall coordinate and check with the relevant ascertaining department， and make taxation adjustments accordingly.
　　VII. The follow-up administration after canceling the procedures of examination and approval of interests of loans borrowed by enterprises
　　According to Article 21 of the Detailed Rules for the Implementation of the Tax Law， if there is any reasonable interest of loans occurred in relation to the production and management of an enterprise， the enterprise shall provide the proving documents on loans borrowed and interest paid. Upon verification and consent by the local taxation organ， the interest may be permitted to be listed as expenditure. After the above-mentioned examination and approval procedures have been cancelled， the enterprise shall， with respect to each loan borrowed， attach the following documents when filing its annual income tax return：
　　1. A statement on the comparison of the loan interest rate with the general interest rate of commercial loans at the time of conclusion of the loan contract. And
　　2. The capital verification report indicating that the registered capital has been fully contributed.
　　If the enterprise borrowed the loan from a non-associated bank financial institution， it may be exempt from providing the document as required in the above Item 1.
　　When the local taxation organ is verifying and *uating the tax returns filed by an enterprise， it shall verify and analyze the documents on interests submitted by the enterprise. If any document submitted by the enterprise fails to meet the requirements or is unable to effectively explain the facts， the local taxation organ shall require the enterprise to re-submit the relevant document within a time limit. In case any enterprise fails to provide the statement on the comparison of interest rates， its interest expenditure shall not be deducted when its taxable income is calculated. In case any interest expenditure of an enterprise is higher than the interest result calculated by the current general commercial interest rate， the excessive amount shall not be deducted when its taxable income is calculated. With respect to the loan interest of an enterprise whose registered capital has not been fully contributed， it shall be handled strictly according to the Official Reply of the State Administration of Taxation on the Issue of Listing the Interest of Foreign-funded Enterprises as Expenditures （Letter No. 326 [1991] of the State Administration of Taxation）。
　　VIII. The follow-up administration after canceling the procedures of examination and approval of depreciation of the used fixed assets acquired by enterprises on the basis of the remaining utilizable period
　　According to Article 42 of the Detailed Rules for the Implementation of the Tax Law， if an enterprise acquires any used fixed assets， whose remaining utilizable period is shorter than the depreciation period prescribed in the Detailed Rules for the Implementation of the Tax Law， it may submit the relevant certificates to prove the fact， after obtaining the verification and approval from the local taxation organ， the enterprise may calculate the depreciation on the basis of the remaining utilizable period. After the above mentioned procedures of examination and approval has been cancelled， if an enterprise acquires any used fixed assets， and the remaining utilizable period is shorter than that prescribed in the Detailed Rules for the Implementation of the Tax Law， it may calculate the depreciation on the basis of the actual utilizable period. The enterprise shall， when filing annual income tax return， submit to the competent taxation organ the relevant statements with respect to the depreciated price of the fixed assets， which is calculated according to the above mentioned provisions， as well as the used period and utilizable period， etc.
　　IX. The follow-up administration after canceling the procedures of examination and approval of the change of inventory pricing method by enterprises
　　According to Article 51 of the Detailed Rules for the Implementation of the Tax Law， once the inventory pricing method of an enterprise is selected， it shall not be changed at will. If any enterprise needs to change its inventory pricing method， it shall report to the local taxation organ for approval before the next tax year begins. After the above-mentioned approval and examination procedures have been cancelled， if the enterprise needs to change its inventory pricing method， it shall， before the next tax year begins， submit a written statement to the competent taxation organ on the reasons for changing the inventory pricing method. The competent taxation organ shall analyze and verify the rationality of the reasons provided by the enterprise for changing the inventory pricing method. If the reasons of an enterprise for changing the inventory pricing method are ascertained to be insufficient， or the enterprise is suspected of delaying the payment of tax， the competent taxation organ may notify the enterprise to maintain the original inventory pricing method.
　　X. The follow-up administration after canceling the procedures of examination and approval of pre-income tax deduction of enterprises due to property losses
　　According to the Circular of the State Administration of Taxation on the Administration of Approval of Pre-income Tax Deduction concerning Property Losses of Foreign-funded Enterprises （Guo Shui Fa [2000] No. 46）， the property losses suffered by an enterprise may， upon verification and approval of the taxation organ， be deducted at the time of calculating the payable enterprise income tax for the current period. After the above mentioned examination and approval procedures have been cancelled， the enterprise suffering from property losses shall， when filing annual income tax return to the competent taxation organ， make a written statement on the type， extent， quantity， price， reasons， and the period for deductions of its property losses， etc.， and attach the appraisal documents of the property losses made by the relevant internal department of the enterprise . In case any property loss caused from outside the enterprise is involved， the enterprise shall also attach the appraisal documents of the property losses made by the external relevant internal department or office.
　　A competent taxation organ shall， when inspecting the payment of enterprise income tax， inspect the major aspects of property losses of the enterprise. With respect to the property losses listed by the enterprise as expenditures， if the enterprise provides no documents stating the circumstance， nor any evidence can be collected， the competent taxation organ may make tax payment adjustment.
　　Document Guo Shui Fa [2000] No. 46 promulgated by the State Administration of Taxation on March 13， 2000 shall be repealed simultaneously.
　　XI. The follow-up administration after canceling the procedures of examination and approval of offsetting the income of foreign enterprises' representative offices with their respective expenditures for calculating the taxes payable
　　According to the Circular of the State Administration of Taxation concerning the Relevant Issues on Strengthening the Taxation Administration of Foreign Enterprises' Permanent Representative Offices （Guo Shui Fa [1996] No. 165）， a foreign enterprises' permanent representative office that engages in taxable business may offset its income with expenditures for calculating the taxes payable， after its application reported level by level has been approved by the State Administration of Taxation. This Administration promulgated the Circular of the State Administration of Taxation concerning the Relevant Issues on Taxation Administration of Foreign Enterprises' Permanent Representative Offices （Guo Shui Fa [2003] No. 28） on March 12， 2003， in which this Administration made adjustments to the scope and specific administrative requirements on offsetting the income of foreign enterprises' permanent representative offices with their respective expenditures for calculating the taxes payable， and cancelled the requirements for approval in this regard. After the State Council has cancelled these examination and approval procedures， all regions shall continue to abide by the provisions of Document Guo Shui Fa [2003] No. 28 promulgated by the State Administration of Taxation.
　　XII. The follow-up administration after canceling the procedures of examination and approval of exempting foreign enterprises and foreign individuals from business tax on their income obtained inside China due to transfer of technologies
　　According to Article 2 of the Circular the Ministry of Finance and the State Administration of Taxation concerning Relevant Taxation Issues on Implementing the Decision of CCCPC and the State Council on Strengthening Technical Innovation， Developing Hi-techs， and Realizing Industrialization （Cai Shui Zi [1999] No. 273）， foreign enterprises and foreign individuals may be exempted from business tax on their income obtained inside China due to transfer of technologies once their applications reported level by level have been verified and approved by the State Administration of Taxation. After the above-mentioned procedures of examination approval have been cancelled， a domestic transferee shall keep the following documents on payment of the said technology transfer fee for inspections conducted by the taxation organ.
　　1. Technology transfer permit approved by the competent authority of the state. And
　　2. Technology transfer contract.
　　Where a foreign enterprise or foreign individual simultaneously transfers the trademark use right when transferring a technology into China， it/he shall stipulate the technology transfer fee and the trademark royalty in the contract. If the trademark royalty is not stipulated， or is stipulated but obviously lower than it ought to be， the trademark royalty shall be ratified as not lower than 50% of the total contractual price for calculation of the payable business tax. With respect to a technology transfer contract without the approval of the competent authority of the state， the expenses paid may not be treated as technology transfer fee for tax exemption， but shall be handled as common labor service fee and be governed by the provisions on relevant tax issues.
　　XIII. The follow-up administration after canceling the procedures of examination and approval of individual income tax return filed by each foreign taxpayer at a fixed locality
　　According to Article 10 of the Circular of the State Administration of Taxation on Printing and Promulgating the Provisions on Some Issues concerning Levying Individual Income Taxes （Guo Shui Fa [1994] No. 089）， a foreign taxpayer who stays in China temporarily and works or provides labor services in several localities may， after the application filed by him is approved， file tax returns at one fixed locality. After the above-mentioned examination and approval procedures have been cancelled， if a foreign taxpayer stays in China temporarily and works or provides labor services in several localities， his actual working locality at the date prescribed in the Tax Law for consolidated filing of tax return shall be deemed as the locality for filing tax return， i.e. if he stays in a certain locality until the date for filing tax return， he shall file the tax return at this locality.
　　XIV. The follow-up administration after canceling the procedures of examination and approval of exemption of individual income tax on subsidies of foreign individuals in respect of lodging， boarding， etc.
　　According to Article 2 of the Circular of the Ministry of Finance and the State Administration of Taxation on Some Individual Income Tax Policies （Cai Shui Zi [1994] No. 020）， and the Official Reply of the State Administration of Taxation on Exemption of Individual Income Tax on the Relevant Subsidies Received by Foreign Individuals （ Guo Shui Fa [1997] No. 54）， if a foreign individual receives subsidies for lodging， boarding， laundering， moving， business travel， visiting families， language training， children's education， etc. by non-cash means or getting reimbursement for the actual amount spent， the taxpayer shall provide the relevant vouchers for the competent taxation organ to ratify， and may， upon ratification and approval， be exempt from individual income tax. After the above-mentioned examination and approval procedures have been cancelled， if a foreign individual receives the above-mentioned subsidies and income， he shall， when filing individual income tax return or having the individual income tax withheld， provide the relevant effective vouchers and proving documents according to Document Guo Shui Fa [1997] No. 54 promulgated by the State Administration of Taxation. The competent taxation organ shall， pursuant to the requirements of Document Guo Shui Fa [1997] No. 54 of the State Administration of Taxation， verify the relevant subsidies and income item by item that declared by the taxpayer or the withholding agent. If the relevant vouchers and proving documents cannot prove the rationality of the said tax-exempt subsidies， the competent taxation organ shall require the taxpayer or the withholding agent to， within a time limit， re-submit proving documents. In the case of failure in provide any effective vouchers and proving documents on the subsidies and income， the competent taxation organ shall have the power to make tax payment adjustments.
　　XV. The follow-up administration after canceling the procedures of examination and approval of tax exemption on foreign individuals' wage and salary income which occurred prior to but obtained during their stay in China
　　According to Article 1 of the Official Reply of the State Administration of Taxation concerning the Issue of Determining the Tax Payment Obligation of the Foreign Employee of xxx Dalian Office Who Obtained Bonuses for Several Months （Guo Shui Han [1997] No.546）， if any individual who has no domicile inside China obtains bonuses for several months in a lump sum after arriving in China， and is able to provide the rules of the relevant award system of the employing entity to prove that the said bonuses obtained for several months include bonuses for the months prior to his coming to China， he may be exempt from individual income tax regarding such bonuses upon ratification by the local competent taxation organ. After the above mentioned examination and approval procedures have been cancelled， if an individual who has no domicile inside China obtains the said bonuses for several months， he shall， when filing the tax return， make a statement on the bonuses exempt from tax， and attach the relevant documents of the award system of the employing entity. If it is proved that the bonuses include those for the months prior to his coming to China， the included part of bonuses may be deducted and exempted from tax. Otherwise， the taxation organ shall have the power to make tax payment adjustments.
　　XVI. The follow-up administration after canceling the procedures of examination and approval of tax payment on an installment basis by individuals who subscribe stocks or other securities
　　According to Article 2 of the Circular of the State Administration of Taxation concerning the Issue of Levying Individual Income Tax on Individuals Who Subscribe Stocks or Other Securities and Obtain Discount or Subsidy Income from Their Respective Employers （Guo Shui Fa [1998] No. 009）， if an individual subscribes stocks or other securities and obtains discount or subsidy income from his employer， and it is difficult to calculate the payable individual income tax by including the discount or subsidy into the wage and salary income of the present month due to excessive amount of lump-sum income， which may be reported at the time of calculating the payable tax to the competent taxation organ for approval， upon the approval， his payable income tax shall be separated equally by month within a period of 6 months. After the above-mentioned examination and approval procedures have been cancelled， an individual who obtains a large amount of the above said income may choose on his own to separate equally his payable individual income tax by month within a period of 6 months by including the discount or subsidy into his wage and salary income， and make a statement on such choice at the time of filing tax return. Once the individual has selected the length of time for calculation of the payable tax， he may not change it.
　　XVII. The follow-up administration after delegating the procedures of examination and approval of enterprise income tax credits for enterprises to purchase domestically produced equipment for investment
　　According to Article 10 of the Circular of the State Administration of Taxation on Printing and Promulgating the Measures for the Administration of Enterprise Income Tax Credits for Foreign-funded Enterprises and Foreign Enterprises to Purchase Domestically Produced Equipment for Investment （ Guo Shui Fa [2000] No. 90）， if an enterprise purchases domestically produced equipment and applies for enterprise income tax credit due to investment， it shall， within two months after purchasing the domestically produced equipment， apply to the competent taxation organ， which shall then report the application level by level to the taxation organ at the provincial level for approval. After the above-mentioned examination and approval procedures have been delegated to the taxation organ of the prefecture （city）， an enterprise that purchases domestically produced equipment shall still， at the time of applying for enterprise income tax credit due to investment， submit the relevant documents to the competent taxation organ on time as required by Document Guo Shui Fa [2000] No. 90 promulgated by the State Administration of Taxation. The competent taxation organ shall， after receipt of the application， report to the taxation organ of the prefecture （city） for approval. The taxation organ of the prefecture （city） shall， abide by strictly the Circular of the Ministry of Finance and the State Administration of Taxation on the Relevant Issues concerning Enterprise Income Tax Credits by Foreign-funded Enterprises and Foreign Enterprises That Purchase Domestically Produced Equipment for Investment （Cai Shui Zi [2000] No. 49） and Order No. 90 [2000] promulgated by the State Administration of Taxation， carefully verify and approve the application， and submit the approval opinions to the taxation organ at the provincial level for record filing.
　　XVIII. This Circular shall take effect as of July 1， 2004. The unapproved items occurred prior to the implementation of this Circular shall still be governed by the previous provisions.