GuoShuiFa [2003] No.76 June 25, 2003

The bureaus of state taxations and the bureaus of local taxations of the provinces, autonomous regions, municipalities directly under the Central Government, and municipality separately listed on the State plan, and the entities in those bureaus:

In accordance with the spirit of the Circular of the State Council on Distributing the Scheme on the Reform of Income Tax Revenue Sharing (GuoFa [2001] No.37), the State Administration of Taxation (SAT) handed down the Circular of the State Administration of Taxation on the Taxation Scope after Reform of the Sharing System of Income Tax Revenues (GuoShuiFa [2002] No.8 ), which provide for the specific taxation scope of the bureaus of state taxation and the bureaus of local taxation after the reform of the sharing system of income tax revenues. Since execution of the new taxation scope from over one year ago, the bureaus of state taxation and the bureaus of local taxation at various levels have taken consideration for the interests of the whole, strengthened the coordination and cooperation in the division of taxation scope, and thus guaranteed the smooth progress of the reform of the sharing system of income tax revenue. However, with the deepening of the enterprise reform, the forms of enterprise restructuring become more and more varied, and some new situations have brought new problems to the taxation work of income taxes, in order to implement the principle of taxation according to law, and to make up the omissions in taxation, the taxation scope for enterprise income tax after the enterprises' restructuring and operation form changes shall be further clarified. For this purpose, the supplementary circular is hereby made concerning the taxation scope of enterprise income tax on the basis of the spirit provided for by document GuoShuiFa [2002] No.8:

1. Where the original enterprise is in any of the following situations, even if it has made the establishment (business start) registration, its enterprise income tax shall be subject to taxation by the original taxation organ:

1) The original enterprise is transferred or sold (auctioned) as a whole, but continues to exist and be qualified as an independent taxpayer. However, if the original enterprise, after being transferred or sold (auctioned) as a whole, becomes a wholly-funded subsidiary of the acquiring enterprise, and is brought into the scope of consolidate tax payment of the acquiring enterprise, then the income tax of the enterprise transferred or sold (auctioned) as a whole shall be taxed by the taxation organ in charge of the taxation of income tax of the acquiring enterprise.

2) An enterprise acquires any other enterprise by merger (the acquired enterprise is written off) and continues to exist.

3) A partnership enterprise is restructured into a limited liability company or a joint stock limited company, and no new investment is absorbed in the restructuring.

4) Alteration registration shall be made pursuant to the provisions of the State Administration for Industry and Commerce, such as for expansion of the enterprise, alteration of the leading (subordinate) relationship, enterprise name, enterprise type, economic nature, business scope, business duration, operation method, legal representative, shareholders, name (title) of the shareholder of the promoter of the company, registered capital, addition or cancellation of any branch, as well as the alteration of domicile, or business site, etc.

2. Where an original domestic-funded enterprise is restructured into a foreign-funded enterprise, and the income tax of foreign-funded enterprise and foreign enterprise shall be collected pursuant to the provisions, no matter the enterprise makes whichever industrial and commercial registration, the taxation scope shall be determined pursuant to the Circular of the General Office of the State Council on Transmitting the Opinions of the State Administration of Taxation on Adjusting the Taxation Scope of the Bureaus of state Taxation and the Bureaus of Local Taxation (GuoBanFa [1996] No.4) on the limit of authority of the administration of income tax of foreign-funded enterprises and foreign enterprises.

3. The taxation scope for public institutions and social organizations shall comply with the spirit of document GuoShuiFa [2002] No.8 and the aforesaid provisions.

4. The bureaus of state taxation and bureaus of local taxation at various levels shall further strengthen cooperation in the division of taxation scope of income taxes, shall strengthen contact, coordination and communication in the aspects of execution of the policies on enterprise income tax and determination and collection of enterprise income tax, etc., shall strictly comply with the policies on reduction and exemption of enterprise income tax, and thus to ensure the uniformity and seriousness of the tax law.

5. The Provisions shall be implemented as of July 1, 2003. In order to keep the stability of taxation order, where the taxation scope in respect of any domestic-funded enterprise that is subject to the actual taxation by a bureau of state taxation or local taxation is inconformity with the Circular, such scope will not be adjusted any more.

Promulgated by The State Administration of Taxation on 2003-6-25