New regulations of Administrative Measures for Collection of Income Tax on Enterprises

1. Background 

The Administrative Measures for Collection of Income Tax on Enterprises Operating in Different Regions and Paying Tax Collectively (refer to ‘the measure’) published by the State Administration of Taxation on 27 December 2012, is to solve effectively the problems of new enterprise income tax law, the tax resources transferring problems of cross provinces or cities under the corporate tax system; and the disputes arising from the unbalanced distribution of the tax resources in different regions or even problems in intervening the enterprises operations and etc. In addition, the measure is to mitigate the problems caused by different cities implementing the same policies such as Guo Sui Fa [2008] No.28 published by the State Administration of Taxation and etc, thus causing inconsistencies and hiccups during the period of implementations, and has better resolved the problems of uneven distribution of benefits amongst the different regions. The measure will be effective from 1 January 2013. 

The enterprise paying tax collectively must comply with the provisions of ‘unified calculation, classified management, tax prepayment locally, tax clearance collectively and ministry of finance adjustment’ for the administrative measure of enterprises income tax. The enterprise income tax is to be allocated and paid locally by the head office and its branches. 

2. Clarifications 

Unified calculation 

The head office shall calculate all taxable income and tax payable of which even including those of the branches which do not qualify as legal entities. 

Classified management 

In respect of the head office or its branches, the local tax authorities shall be responsible for the enterprise income tax management of those enterprises, and the head office and its branches shall be in charged by local tax authorities respectively.

Tax prepayment locally 

Under the provisions of the measure, the head office and its branches shall declare and pay the enterprise income tax to the local tax authorities in a monthly or quarterly basis respectively. 

Tax clearance collectively 

The head office shall calculate the total annual taxable income and tax payable collectively at the end of each year; and deduct the tax prepayment of which the head office and its branches paid locally for the current year. It will be refundable if the amount paid were excessive; on other hand any shortfall between the tax payable and the tax prepayment will have to be made good. 

Ministry of Finance Adjustment 

The enterprise income tax received from corporations by the National Treasury, shall be allocated and transferred by The Ministry of Finance to the Local Treasuries at approved rates. 

Branches 

Refer to the enterprise which has paid tax collectively and is set up and approved to achieve the business license of the non-corporate organization (Registration Certificate), and the branches of the head office which it has directly unified calculated and managed its finances, business activities and employees etc. 

3. Highlights of New Regulations 

1. In respect of the pre-paid tax and the payable and refundable tax settled and paid, 50 percent shall be apportioned among all local branch offices, and their apportioned tax payments shall locally be handed over by all the local branch offices to the treasury or refunded from the treasury. The other 50 percent shall be apportioned to the head offices, among which 25 percent shall be handed over to or refunded from the treasury locally and 25 percent shall be handed over to or refunded from the national treasury in full amount. 
2. 3.2 Clearly states the treatment of unpaid tax payable of head offices and which portion must be paid locally which helps to solve the bottleneck of the policies of monitoring and controlling locally. 
3. The Adjustment of the branches’ revenue, salary and total asset, has changed into unified recognition as the amounts are recognized collectively and not separately recognized as in the preceding year or the previous years. 
4. Clearly states that the day for the revocation of branches not to apportion the tax payable shall be the day when the branches have cancelled the tax registration instead of the following year. 
5. Uses the illustrations and new method of accounting standards, changes the ‘three factors’ which includes changing the revenue factor of ‘Jing Ying Shou Ru ‘ into ‘Ying Ye Shou Ru’, the salary factor of ‘Zhi Gong Gong Zi’ into ‘Zhi Gong Xin Chou’ and the illustrations of total asset factor of ‘Zi Chan Zong E’, has included the intangible assets. 
6. Clearly states that if the data of ‘three factors’ of the branches used by head offices for apportioning tax payable is different from the data confirmed by Chinese CPA, it shall not be adjusted. 
7. In respect of branches which have been investigated of their un-paid tax payable, 50% of those un-paid tax payable has to be apportioned to head office which head office local tax account and national treasury tax account shall be allocated 20% respectively; 50% shall be apportioned to the participated branches. The branches which have not participated the investigation shall not be apportioned for the un-paid tax payable. 
8. Adjustment for non applicable range, the number of the enterprises which the enterprise income tax shall pay to national treasury was 14 and has now changed into 15. 

Since 1 January 2013, when the enterprise paying tax collectively is processing the final tax settlement of enterprise income tax of 2012, it is only able to apply the documentations of Cai Yu [2008] No.10 published by the Ministry of Finance, the State Administration of Taxation and the People’s Bank of China and No.28 published by the State Administration of Taxation.

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