Circular of the State Administration of Taxation on Issues Concerning the Follow-Up Administration after the Cancellation or Delegation of Several Tax Administrative Examination and Approval Items Relating to Foreign-invested Enterprises, Foreign Enterprises and Foreign Individuals

Circular of the State Administration of Taxation on Issues Concerning the Follow-Up Administration after the Cancellation or Delegation of Several Tax Administrative Examination and Approval Items Relating to Foreign-invested Enterprises, Foreign Enterprises and Foreign Individuals

Guo Shui Fa [2004] No. 80

June 25, 2004

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 administration after the cancellation or delegation of several tax administrative examination and approval items relating to foreign-invested enterprises, foreign enterprises and foreign individuals
, which is prescribed in the Document Guo Fa [2004] No. 16:

Article 1 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 Implementing Rules of the Income Tax Law of the People's Republic of China on Foreign-invested 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.

Article 2 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.

Article 3 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 evaluating 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.
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