中华人民共和国外商投资企业和外国企业所得税法实施细则
RULES FOR THE IMPLEMENTATION¹ OF THE INCOME TAX LAW OF THE PEOPLE'S REPUBLIC OF CHINA FOR ENTERPRISES WITH FOREIGN INVESTMENT AND FOREIGN ENTERPRISES

国务院令第85号
（Promulgated by Decree No. 85 of the State Council of the People's Republic of China on June 30， 1991. and effective as of July 1， 1991）
颁布日期：19910630 　实施日期：19910701 　颁布单位：国务院

　　Chapter I General Provisions

　　Article 1 These Rules are formulated² in accordance with the provisions of Article 29 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises （hereinafter referred to as the “Tax Law”）。

　　Article 2 “Income from production and business operations” mentioned in Article 1， paragraph 1 and paragraph 2 of the Tax Law means income from production and business operations in manufacturing， mining， communications and transportation， construction and installation， agriculture， forestry³， animal husbandry， fishery， water conservation， commerce， finance， service industries， exploration and exploitation， and in other trades.

　　“Income from other sources” mentioned in Article 1， paragraph 1 and paragraph 2 of the Tax Law means profits （dividends⁴）， interest， rents， income from the transfer of property， income from the provision or transfer of patents， proprietary⁵ technology， income from trademark⁶ rights and copyrights as well as other non-business income.

　　Article 3 “Enterprises with foreign investment” mentioned in Article 2， paragraph 1 of the Tax Law and “foreign companies， enterprises and other economic organizations which have establishments or places in China and engage in production or business operations” mentioned in Article 2， paragraph 2 of the Tax Law are， unless otherwise especially specified⁷， generally all referred to as “enterprises” in these Rules. “Establishments or places” mentioned in Article 2， paragraph 2 of the Tax Law refers to management organizations， business organizations， administrative⁸ organizations and places for factories and the exploitation of natural resources， places for contracting of construction， installation， assembly， and exploration work， places for the provision of labor⁹ services， and business agents.

　　Article 4 “Business agents” mentioned in Article 3， paragraph 2 of these Rules means companies， enterprises and other economic organizations or individuals entrusted¹⁰ by foreign enterprises to engage as agents in any of the following：

　　（1） representing principals on a regular basis in the arranging of purchases and signing of purchase contracts and the purchasing of commodities on commission；

　　（2） entering into agency agreements or contracts with principals， storing on a regular basis products or commodities owned by principals， and delivering on behalf of principals such products or commodities to other parties； and

　　（3） having authority to represent principals on a regular basis in signing of sales contracts or in accepting of purchase orders.

　　Article 5 “Head office” mentioned in Article 3 of the Tax Law refers to the central organization which is established in China by an enterprise with foreign investment as a legal person pursuant to the laws of China and which is responsible for the management， operations and control over such enterprise.

　　Income from production and business operations and other income derived¹¹ by the branches within or outside China of an enterprise with foreign investment shall be consolidated¹² by the head office for purposes of the payment of income tax.

　　Article 6 “Income derived from sources inside China” mentioned in Article 3 of the Tax Law refers to：

　　（1） income from production and business operations derived by enterprises with foreign investment and foreign enterprises which have establishments or places in China， as well as profits （dividends）， interest， rents， royalties¹³ and other income arising within or outside China actually connected with establishments or sites established in China by enterprises with foreign investment or foreign enterprises；

　　（2） the following income received by foreign enterprises which have no establishments or sites in China：

　　（a） profits （dividends） earned by enterprises in China；

　　（b） interest derived within China such as on deposits or loans， interest on bonds， interest on payments made provisionally for others， and deferred¹⁴ payments；

　　（c） rentals¹⁵ on property leased to and used by lessees¹⁶ in China；

　　（d） royalties such as those received from the provision of patents， proprietary technology， trademarks¹⁷ and copyrights for use in China；

　　（e） gains from the transfer of property， such as houses， buildings， structures and attached facilities located in China and from the assignment of land-use rights within China；

　　（f） other income derived from China and stipulated¹⁸ by the Ministry¹⁹ of Finance to be subject to tax.

　　Article 7 In respect of Chinese-foreign contractual joint²⁰ ventures that do not constitute legal persons， each partner thereto may separately compute²¹ and pay income tax in accordance with the relevant tax laws and regulations of the State； income tax may， upon approval by the local tax authorities of an application submitted by such enterprises， be computed²² and paid on a consolidated basis in accordance with the provisions of the Tax Law.

　　Article 8 “Tax year” mentioned in Article 4 of the Tax Law begins on January 1 and ends on December 31 under the Gregorian Calendar.

　　Foreign enterprises that have difficulty computing²³ taxable income in accordance with the tax year stipulated in the Tax Law may， upon approval by the local tax authorities of an application submitted by such enterprises， use their own 12-month fiscal²⁴ year as the tax year.

　　Enterprises commencing business operations in the middle of a tax year or actually operating for a period of less than 12 months in any tax year due to such factors as merger²⁵ or shut-down shall use the actual period of operations as the tax year.

　　Enterprises that undergo liquidation²⁶ shall use the period of liquidation as the tax year.

　　Article 9 “The competent authority for tax affairs under the State Council” mentioned in Article 8， paragraph 3 and Article 19， paragraph 3， Item （4） of the Tax Law and Article 72 of these Rules refers to the Ministry of Finance and the State Tax Bureau.

　　Chapter II Computation of Taxable Income

　　Article 10 “The formula for the computation of taxable income” mentioned in Article 4 of the Tax Law is as follows：

　　（1） Manufacturing：

　　（a） taxable income = （profit on sales） + （profit from other operations）

　　（b） profit on sales = （net sales） - （cost of products sold） - （taxes on sales） - [ （selling expenses） + （administrative expenses） + （finance expenses） ]；

　　（c） net sales = （gross sales） - [ （sales returns） + （sales discounts and allowances） ]；

　　（d） cost of products sold = （cost of products manufactured for the period）

　　（e） cost of products manufactured for the period = （manufacturing costs for the period） + （inventory²⁷ of semi-finished products and products in process at the beginning of the period） - （inventory of semi-finished products and products in process at the end of the period）；

　　（f） manufacturing costs for the period = （direct materials consumed in production for the period） + （direct labour） + （manufacturing expenses）。

　　（2） Commerce：

　　（a） taxable income = （profit on sales） + （profit from other operations）

　　（b） profit on sales = （net sales） - （cost of sales） - （taxes on sales） - [ （selling expenses） + （administrative expenses） + （finance expenses） ]；

　　（c） net sales = （gross sales） - [ （sales returns） + （sales discounts and allowances） ]；

　　（d） cost of sales = （inventory of merchandise at the beginning of the period） + { （purchase of merchandise during the period） - [ （purchase returns） + （purchase discounts and allowances） ] + （purchasing expenses） } - （inventory of merchandise at the end of the period）。

　　（3） Service trades：

　　（a） taxable income = （net business income） + （non-operating income） -（non- operating expenses）；

　　（b） net business income = （gross business income） - [ （taxes on business income） + （operating expenses） + （administrative expenses） + （finance expenses） ].

　　（4） Other lines of business： Computations shall be made with reference to the above formulas.

　　Article 11 The computation of taxable income of an enterprise shall， in principle， be on an accrual²⁸ basis.

　　The following income from business operations of an enterprise may be determined²⁹ by stages and used as the basis for the computation of taxable income：

　　（1） Where products or commodities are sold by installment³⁰ payment methods， income from sales may be recognized according to the invoice³¹ date of the products or commodities to be delivered； income from sales may also be recognized according to the date of payment to be made by the buyer as agreed upon in the contract；

　　（2） Where construction， installation and assembly projects， and provision of labour services extend beyond one year， income may be recognized according to the progress of the project or the amount of work completed；

　　（3） Where the processing or manufacturing of heavy machinery³²， equipments and ships for other enterprises extends beyond one year， income may be recognized according to the progress of the project or amount of work completed.

　　Article 12 Where Chinese-foreign contractual joint ventures operate on the basis of product-sharing， the partners thereto shall be deemed to receive income at the time of the division of the products； the amount of income shall be computed according to the price sold to third party or with reference to prevailing³³ market prices.

　　Where foreign enterprises are engaged in the co-operative exploration of petroleum³⁴ resources， the partners thereto shall be deemed to receive income at the time of the division of the crude oil； the amount of income shall be computed according to a price which is adjusted periodically with reference to the international market prices of crude oil of similar quality.

　　Article 13 In respect of income obtained by enterprises in the form of non-monetary assets or rights and interests， such income shall be computed or appraised³⁶ with reference to prevailing market prices.

　　Article 14 “Exchange rate quoted by the State exchange control authorities” mentioned in Article 21 of the Tax Law refers to the buying rate quoted by the State Administration of Exchange Control.

　　Article 15 In respect of income obtained by enterprises in foreign currency， upon payment of income tax in quarterly instalments in accordance with the provisions of Article 15 of the Tax Law， taxable income shall be computed by converting the income into Renminbi according to the exchange rate quotation³⁷ on the last day of the quarter. At the time of final settlement following the end of the year， no recomputation and reconversion need be made in respect of income in a foreign currency for which tax has already been paid on a quarterly basis； only that portion of the foreign currency income of the entire year for which tax has not been paid shall， in respect of the computation of taxable income， be converted into Renminbi according to the exchange rate quotation on the last day of the tax year.

　　Article 16 Where an enterprise is unable to provide complete and accurate certificates of costs and expenses and is unable to correctly compute taxable income， the local tax authorities shall determine the rate of profit and compute taxable income with reference to the profit level of other enterprises in the same or similar trade. Where an enterprise is unable to provide complete and accurate certificates of revenues and is unable to report income correctly， the local tax authorities shall appraise³⁵ and determine taxable income by the use of such methods as cost （expense） plus reasonable profits.

　　When the tax authorities appraise and determine profit rates or revenues in accordance with the provisions of the preceding paragraph， and where other treatment is provided by the laws， regulations and rules， such other treatment shall be applicable.

　　Article 17 Foreign air transportation and ocean shipping³⁸ enterprises engaged in international transport business shall use 5% of the gross revenues from passenger and cargo³⁹ transport and shipping services arising within China as taxable income.

　　Article 18 Where an enterprise with foreign investment invests in another enterprise within China， the profits （dividends） so obtained from the enterprise receiving such investment may be excluded from taxable income of the enterprise； however， expenses and losses incurred⁴¹ in such above-mentioned investments shall not be deducted⁴³ from taxable income of the enterprise.

　　Article 19 Unless otherwise stipulated by the State， the following items shall not be itemized as costs， expenses or losses in the computation of taxable income：

　　（1） expenses in connection with the acquisition or construction of fixed⁴⁴ assets；

　　（2） expenses in connection with the transfer or development of intangible assets；

　　（3） interest on capital；

　　（4） various income tax payments；

　　（5） fines for illegal business operations and losses due to the confiscation⁴⁵ of property；

　　（6） surcharges and fines for overdue⁴⁶ payment of taxes；

　　（7） the portion of losses due to natural disasters or accidents for which there has been compensation；

　　（8） donations and contributions other than those used in China for public welfare or relief purposes；

　　（9） royalties paid to the head office；

　　（10） other expenses not related to production or business operations.

　　Article 20 Reasonable administrative expenses paid by a foreign enterprise with an establishment or site in China to the head office in connection with production or business operations of the establishment or site shall be permitted to be itemized as expenses following agreement by the local tax authorities after an examination and verification of documents of proof issued by the head office in respect of the scope of the administrative expenses， total amounts， the basis and methods of allocation， which shall be provided together with an accompanying verification report of a certified⁴⁷ public accountant.

　　Administrative expenses in connection with production and business operations shall be allocated⁴⁸ reasonably between enterprises with foreign investment and their branches.

　　Article 21 Reasonable interest payments incurred on loans in connection with production and business operations shall be permitted to be itemized as expenses following agreement by the local tax authorities after an examination and verification of documents of proof， which shall be provided by the enterprises in respect of the loans and interest payments. Interest paid on loans used by enterprises for the purchase or construction of fixed assets or the transfer or development of intangible assets prior to the assets being put into use shall be included in the original value of the assets. “Reasonable interest” mentioned in the first paragraph of this Article refers to interest computed at a rate not higher than normal commercial lending rates.

　　Article 22 Entertainment expenses incurred by enterprises in connection with production and business operations shall， when supported by authentic⁴⁹ records or invoices⁵⁰ and vouchers⁵¹， be permitted to be itemized as expenses subject to the following limits：

　　（1） Where annual net sales are 15 million yuan （RMB） or less， not to exceed 0.5% of net sales； for that portion of annual net sales that exceeds 15 million yuan （RMB）， not to exceed 0.3% of that portion of net sales.

　　（2） Where annual gross business income is 5 million yuan （RMB） or less， not to exceed 1% of annual gross business income； for that portion of annual gross business income that exceeds 5 million yuan （RMB）， not to exceed 0.5% of that portion of annual gross business income.

　　Article 23 Exchange gains or losses incurred by enterprises during preconstruction or during production and business operations shall， except as otherwise provided by the State， be appropriately itemized as gains or losses for that respective period.

　　Article 24 Salaries and wages， and benefits and allowances paid by enterprises to employees shall be permitted to be itemized as expenses following agreement by the local tax authorities after an examination and verification of the submission⁵³ of wage scales and supporting documents and relevant materials.

　　Foreign social security premiums⁵⁴ paid by enterprises to employees working in China shall not be itemized as expenses.

　　Article 25 Enterprises engaged in such businesses as credit and leasing operations may， on the basis of actual requirements and following approval by the local tax authorities of a report thereon， provide year-by-year bad debt provisions， the amount of which shall not exceed 3% of the amount of the year-end loan balances （not including inter-bank loans） or the amount of accounts receivable， bills receivable and other such receivables， to be deducted from taxable income of that year.

　　The portion of the actual bad debt losses incurred by an enterprise which exceeds the bad debt provisions of the preceding year may be itemized as a loss in the current year； the portion less than the bad debt provisions of the previous year shall be included in taxable income of the current year.

　　Bad debt losses mentioned in the preceding paragraph shall be subject to approval after examination and verification by the local tax authorities.

　　Article 26 “Bad debt losses” mentioned in Article 25， paragraph 2 of these Rules refers to the following accounts receivable：

　　（1） due to the bankruptcy⁵⁵ of the debtor⁵⁶， collection is still not possible after the use of the bankruptcy assets for settlement；

　　（2） due to the death of the debtor， collection is still not possible after the use of the estate for repayment⁵⁷；

　　（3） due to the failure of the debtor to fulfil repayment obligations for over two years， collection is still not possible.

　　Article 27 Accounts receivable already itemized as bad debt losses which are recovered in full or in part by an enterprise in a subsequent year shall be included in taxable income of the year of recovery.

　　Article 28 Foreign enterprises with establishments or places in China may， except as otherwise provided by the State， deduct⁴² as expenses foreign income tax， which has been paid on profits （dividends）， interest， rents， royalties and other income received from outside China and actually connected with such establishments or places.

　　Article 29 “Net assets or remaining property” mentioned in Article 18 of the Tax Law means the amount of all assets or property following deduction⁵⁸ of various liabilities and losses upon the liquidation of an enterprise.

　　Chapter III Tax Treatment for Assets

　　Article 30 “Fixed assets of enterprises” means houses， buildings and structures， machinery， mechanical apparatus⁵⁹， means of transport and other such equipment， appliances and tools related to production and business operations with a useful life of one year or more. Items not in the nature of major equipment which are used for production or business operations and which have a unit value of 2，000 yuan （RMB） or less， or with a useful life of two years or less may be itemized as expenses on the basis of actual consumption.

　　Article 31 The valuation of fixed assets shall be based on original cost.

　　The original cost of purchased fixed assets shall be the purchase price plus transportation expenses， installation expenses and other related expenses incurred prior to the use of the assets.

　　The original cost of fixed assets manufactured or constructed by an enterprise itself shall be the actual expenses incurred in their manufacture or construction.

　　The original cost of fixed assets treated as investments shall， giving consideration to the degree of wear and tear of the fixed assets， be such reasonable price as is specified in the contract， or a price appraised with reference to the relevant market price plus the relevant expenses incurred prior to the use thereof.

　　Article 32 Depreciation⁶⁰ of fixed assets of an enterprise shall be computed commencing with the month following the month in which they are first put into use. The computation of depreciation shall cease in the month following the month in which the fixed assets cease to be used.

　　All investments made during the development stage by enterprises engaged in the exploitation of oil resources shall， taking the oil （gas） field as a unit， be aggregated⁶¹ and treated as capital expenditures⁶³； the computation of depreciation shall begin in the month following the month in which the oil （gas） field commences commercial production.

　　Article 33 In respect of the computation of depreciation of fixed assets， the salvage⁶⁴ value shall first be estimated and deducted from the original cost of the assets. The salvage value shall not be less than 10% of the original value； any request for retaining a lower salvage value or not salvage value must be approved by the local tax authorities.

　　Article 34 Depreciation of fixed assets shall be computed using the straight-line method. Where it is necessary to use any other method of depreciation， an application may be filed by an enterprise which， following examination and verification by the local tax authorities， shall be reported level-by- level to the State Tax Bureau for approval.

　　Article 35 The computation of the minimum useful life in respect of the depreciation of fixed assets is as follows：

　　（1） for houses and buildings： 20 years；

　　（2） for railway rolling stock， ships， machinery， mechanical apparatus， and other production equipment： 10 years；

　　（3） for electronic equipment and means of transport other than railway rolling stock and ships， as well as as such fixtures⁶⁵， tools and furnishings related to production and business operations： 5 years.

　　Article 36 Depreciation of fixed assets in the nature of investments during the development stage and subsequent stages of an enterprise engaged in the exploitation of oil resources may be computed on a consolidated basis without retaining salvage value； the period of depreciation shall not be less than six years.

　　Article 37 “Houses and buildings” mentioned in Article 35， Item （1） of these Rules means houses， buildings and attached structures used for production and business operations， and living quarters and welfare facilities for employees， the scope of which is as follows：

　　—— houses， including factory buildings， business premises⁶⁶， office buildings， warehouses⁶⁷， residential⁶⁸ buildings， canteens， and other such buildings；

　　—— buildings， including towers， ponds， troughs， wells， racks， sheds （not including temporary， simply constructed structures such as work sheds and vehicle sheds）， fields， roads， bridges， platforms， piers⁶⁹， docks， culverts， gas stations as well as pipes， smokestacks， and enclosing walls that are detached from buildings， machinery and equipment；

　　Facilities attached to buildings and structures mean auxiliary⁷⁰ facilities that are inseparable from buildings and structures and for which no separate value is computed， including， for example， building and structure ventilation and drainage systems， oil pipelines⁷¹， communication and power lines， elevators and sanitation⁷² equipment.

　　Article 38 The scope of railway rolling stock， ships， machinery， mechanical apparatus and other production equipment mentioned in Article 35， Item （2） of these Rules is as follows：

　　—— “railway rolling stock” includes various types of locomotives， passenger coaches， freight cars， as well as auxiliary facilities on rolling stock for which no separate value is computed；

　　—— “ships” includes various types of motor ships as well as auxiliary facilities on ships for which no separate value is computed；

　　—— “ machinery， mechanical apparatus and other production equipment” includes various types of machinery， mechanical apparatus， machinery units， production lines， as well as auxiliary equipment such as various types of power， transport and conduction equipment.

　　Article 39 The scope of electronic equipment， means of transport other than railway rolling stock and ships mentioned in Article 35， Item （3） of these Rules is as follows：

　　—— “electronic equipment” means equipment comprising mainly integrated circuits， transistors⁷³， electron tubes and other electronic components⁷⁴ whose primary functions are to bring into use the application of electronic technology （including software）， including computers as well as computer-controlled robots， and digital-control or program-control systems.

　　—— “means of transport other than railway rolling stock and ships” includes airplanes， automobiles⁷⁵， trams， tractors， motor bikes （boats）， motorized sailboats， sailboats， and other means of transport.

　　Article 40 Where， for special reasons， it is necessary to shorten the useful life of fixed assets， an application may be submitted by an enterprise to the local tax authorities which following examination and verification shall be reported level-by-level to the State Tax Bureau for approval.

　　Fixed assets which for special reasons as mentioned in the preceding paragraph require the useful life to be shortened include：

　　（1） machinery and equipment subject to strong corrosion⁷⁶ by acid or alkali and factory buildings and structures subject to constant shaking and vibration⁷⁷；

　　（2） machinery and equipment operated continually year-round for the purpose of raising the utilization⁷⁸ rate or increasing the intensity⁷⁹ of use；

　　（3） fixed assets of a Chinese-foreign contractual joint venture having a period of cooperation shorter than the useful life specified in Article 35 of these Rules and which will be left with the Chinese party upon termination of the cooperation.

　　Article 41 Enterprises which acquire used fixed assets having a remaining useful life shorter than the useful life specified in Article 35 of these Rules may， following agreement by the local tax authorities after examination and verification of certifying⁸⁰ documents so submitted， compute depreciation according to the remaining useful life.

　　Article 42 Where expenditures incur⁴⁰ during the course of the use of fixed assets due to increased value caused by expansion， replacement⁸¹， reconstruction⁵² and technical innovation of fixed assets， the original value of fixed assets shall be increased； where the period of use of fixed assets can be extended， the useful life shall be appropriately extended and the computation of depreciation adjusted accordingly.

　　Article 43 No further depreciation shall be allowed in respect of fixed assets which can be continued to be used after having been fully⁸² depreciated⁸³.

　　Article 44 The balance of proceeds from the transfer or disposal of fixed assets by an enterprise shall， after deduction of the under preciated amount or the salvage value and handling fees， be entered into the profit and loss account for the current year.

　　Article 45 Depreciation of fixed assets received as gifts by enterprises may be computed on the basis of reasonable valuation.

　　Article 46 Patents， proprietary technology， trademarks， copyrights， land-use rights and other intangible assets of enterprises shall be appraised on the basis of the original value.

　　For alienated⁸⁴ intangible assets， the original value shall be the actual amount paid based on a reasonable price.

　　For self-developed intangible assets， the original value shall be the actual amount of expenditure⁶² incurred in the course of development.

　　For intangible assets used as investment， the original value shall be such reasonable price as is stipulated in the agreement or contract.

　　Article 47 The amortization⁸⁵ of intangible assets shall be computed using the straight-line method.

　　Intangible assets transferred or assigned or used as investments， where the useful life is stipulated in the agreement or contract， may be amortized⁸⁶ over the period of that useful life； the amortization period in respect of intangible assets for which no useful life has been stipulated or which have been developed internally shall not be less than ten years.

　　Article 48 Reasonable exploration expenses incurred by enterprises engaged in the exploitation of petroleum resources may be amortized against income from oil （gas） fields that have already commenced commercial production. The amortization period shall not be less than one year.

　　Where operation of a contract field owned by a foreign oil company is terminated due to failure to find commercially viable⁸⁷ oil （gas）， and where ownership of the contract for the exploitation of petroleum （gas） resources is not continued and management organizations or offices for carrying on operations for the exploitation of petroleum （gas） resources are no longer maintained in China， reasonable exploration expenses already incurred in respect of the terminated contract field shall， upon examination and confirmation⁸⁸ and the issuance of certification by the tax authorities， be permitted to be amortized against production income of a newly owned contract field when the new contract for cooperative exploitation of oil （gas） resources is signed within ten years from the date of the termination of the old contract.

　　Article 49 Expenses incurred by enterprises during the period of organization shall be amortized beginning with the month following the month in which production and business operations commence； the period of amortization shall not be less than five years.

　　The period of organization mentioned in the preceding paragraph means the period from the date of approval of the organization of the enterprise to the date of commencement of production and business operations （including trial production and trial business operations）。

　　Article 50 Inventories⁸⁹ of merchandise， finished products， goods in process， semi- finished products， raw materials， and other such materials of enterprises shall be valued at cost.

　　Article 51 Enterprises may choose one of the following such methods： first-in， first- out； moving average； weighted average or last-in， first-out as the method of computing actual costs in respect of the delivery or receipt and use of goods in stock.

　　Once a method of valuation has been adopted for use， no change shall be made thereto. Where a change in the method of valuation is indeed necessary， the matter shall be reported to the local tax authorities for approval prior to the commencement of the next tax year.

　　Chapter IV Business Dealings Between Associated Enterprises

　　Article 52 “Associated enterprises” mentioned in Article 13 of the Tax Law refers to companies， enterprises and other economic units that have any of the following relationships with other enterprises：

　　（1） relationships in respect of existing direct or indirect ownership of or control over such matters as finances， business operations or purchases and sales；

　　（2） direct or indirect ownership of or control over it and another by a third party；

　　（3） any other relationship in respect of an association of reciprocal interests.

　　Article 53 “Business transactions between independent enterprises” mentioned in Article 13 of the Tax Law means business dealings carried out between unassociated and unrelated enterprises on the basis of arm's length prices and common business practices.

　　Enterprises have a duty to provide to the local tax authorities relevant materials such as standard prices and charges in respect of business dealings with their associated enterprises.

　　Article 54 Where prices in respect of purchase and sales transactions between an enterprise and its associated enterprises are not based on independent business dealings， adjustments may be made thereto by the local tax authorities according to the following arrangements and methods of determination：

　　（1） based on prices of the same or similar business activities between independent enterprises；

　　（2） based on the level of profits obtained from resales in respect of unassociated and unrelated third party prices；

　　（3） based on costs plus reasonable expenses and profit margin⁹⁰；

　　（4） based on any other reasonable method.

　　Article 55 Where interest paid or received in respect of accommodating financing between an enterprise and an associated enterprise exceeds or is lower than the amount that would be agreed upon by unassociated and unrelated parties， or where the rate of interest exceeds or is lower than the normal rate of interest in respect of similar business， adjustments may be made thereto by the local tax authorities with reference to normal rates of interest.

　　Article 56 Where labour service fees paid or received in respect of the provision of labour services by an enterprise to an associated enterprise are not based on business dealings between independent enterprises， adjustments may be made thereto by the local tax authorities with reference to the normal fee standards of similar labour activities.

　　Article 57 Where the valuation or the receipt or payment of usage fees in respect of such business dealings as the transfer of property or the granting of rights to the use of property between an enterprise and an associated enterprise is not based on business dealings between independent enterprises， adjustments may be made thereto by the local tax authorities with reference to amounts that would be agreed to by unassociated and unrelated parties.

　　Article 58 Management fees paid by an enterprise to an associated enterprise shall not be expensed.

　　Chapter V Withholding⁹¹ at Source

　　Article 59 “Taxable income on profits， interest， rents， royalties and other income” mentioned in Article 19， paragraph 1 of the Tax Law shall， except as otherwise stipulated by the State， be computed on the basis of gross income. Gross royalties obtained from the provision of patents and proprietary technology include fees for blueprint⁹² materials， technical services and personnel training， as well as other related fees.

　　Article 60 “Profits” mentioned in Article 19 of the Tax Law means income derived from the right to profits according to the proportion of investment， equity⁹³ rights， stockholding， or other non-debt profit-sharing rights.

　　Article 61 “Other income” mentioned in Article 19 of the Tax Law includes gains from the transfer of property such as houses， buildings and structures and attached facilities within China and land-use rights.

　　“Gains” mentioned in the preceding paragraph means the amount remaining from the receipt on transfer minus the original value of the property.

　　Where foreign enterprises are unable to provide correct certification of the original value of the property， the original value of the property shall be determined by the local tax authorities according to the specific circumstances thereof

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