Circular of the State Administration of Taxation concerning Printing and Distributing the Guiding Opinions on Classified Administration
of Enterprise Income Tax
Guo Shui Fa [2006] No. 129
The state taxation bureaus and local taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central
Government, and the cities specifically designated in the state plan,
In recent years, all localities accumulated certain experience in abundant exploration and practices in respect of classified administration
of enterprise income tax in light of the local actual situation, and have achieved preferable results. For the purpose of advancing
further the scientific and delicate administration of enterprise income tax, the State Administration of Taxation has enacted the
Guiding Opinions on Classified Administration of Enterprise Income Tax in light of the demands of “verifying tax base, improving
final settlement and payment, strengthening evaluation, and running classified administration”, which is hereby printed and distributed
to you. Please carefully carry out the said Opinions according to your actual situation, and report the circumstances and issues
arising out of the implementation to the State Administration of Taxation in time.
The State Administration of Taxation
August 25, 2006
Guiding Opinions on Classified Administration of Enterprise Income Tax
For the purpose of advancing further the scientific and delicate administration of enterprise income tax, improving the quality and
efficiency of administration of levy of enterprise income tax, the guiding opinions regarding the work of classified administration
of enterprise income tax are hereby given as follows:
I.
Significance of Classified Administration of Enterprise Income Tax
On the basis of territorial administration, classified administration of enterprise income tax follows certain standards, concerning
the different features of enterprise income tax payers, to distinguish the administration methods, clarify the administration contents
and emphasize the key administration points so that the pertinence and effects of the administration of enterprise income tax are
enhanced, and the enterprise income tax sources are effectively controlled.
Classified administration of enterprise income tax is the demand for scientific and delicate administration of enterprise income tax.
It is instrumental to allocate tax collectors and administrators, seize bottlenecks, stand out administration keystones, intensify
the means of administration, and optimize services for tax payment. It also has important significance to effectively strengthen
the supervision and control of enterprise income tax sources, and further improve the quality and efficiency of administration of
levy of enterprise income tax.
II.
Principles of Classified Administration of Enterprise Income Tax
(1)
Principle of distinguishing taxpayers. On the basis of the features of different taxpayersclassified administration shall target
at classifying the objects of administration, differentiating key points of administration, taking pertinent administering measures,
and fully embodying the functions of classified administration.
(2)
Principle of efficiency. For classified administration, the taxation authorities shall firmly get hold of the outstanding problems
and weak points in the administration of enterprise income tax sources, as well as attach importance to the key points of administration
on the one hand, and convenience the operation on the other, so as to save tax levy and payment costs, and enhance the efficiency
of levy administration.
(3)
Principle of coordination. For classified administration of enterprise income tax, the taxation authorities shall be cooperative in
the all-sided administration with regard to levy, audit, statistics, etc. and the administration of multifarious taxes on the one
hand, and reinforce the coordination with the external departments in respect of public finance, industry and commerce, statistics,
banking, cultural affairs, sports, labor and audit, etc. on the other, in order to form a joint force of levy administration.
(4)
Principle of service. Concerning the demands of different classes of taxpayers for services, the taxation authorities shall intensify
the consciousness of providing services for tax payment, elevate the tax payment service ways, optimize and innovate the measures
of providing services for tax payment, and achieve the organic combination of administration with service.
III.
Classification of Enterprise Income Tax Payers
For classified administration of enterprise income tax, the taxation authorities shall consider fully the scale of taxpayers’ tax
sources, accounting conditions, ways of tax payment, tax payment credit standing grades, durations and other elements, analyze the
common demands and characters of enterprise income tax administration, synthetically decide the effective methods which conduce to
intensive administration and embody the rule of levy administration of enterprise income tax on the basis of territorial administration.
Enterprise income tax payers may be classified in the ways as follows:
(1)
In accordance with the scale of their tax sources (chiefly covering the amount of annual taxable income or the amount of annual payable
income taxes or annual profits, etc.), they may be classified as primary taxpayers and non- primary taxpayers;
(2)
In accordance with their accounting conditions, they may be classified as enterprises following levy of tax upon check of accounts
and enterprises following levy of tax upon assessment of the amount;
(3)
In accordance with their ways of tax payment, they may be classified as enterprises of united (combined) tax payment and enterprises
of on-the-spot tax payment;
(4)
In accordance with their credit standing grades, they may be classified as taxpayers of Grade A, Grade B, Grade C and Grade D; and
(5)
Other reasonable methods of classification.
In view of the actual situation on tax sources and the current levy administration staff of the locality, the taxation authorities
in all localities may consider fully the ways of classification mentioned above and utilize them schismatically, and confirm the
explicit standards for classification and the classification making sure processes to classify the taxpayers. With reference to:
the taxpayers’ scale of tax source, integrating the completeness of accounting books, taxpayers may be classified as primary taxpayers,
non- primary taxpayers and taxpayers following levy of tax upon assessment of the amount; in accordance with the credit standing
grades of taxpayers, combined with the tax source scale and methods of levy, taxpayers may be classified as enterprises with good
credit standing and large scale (enterprises of Class A), enterprises with common credit standing and scale (enterprises of Class
B), and enterprises with awful credit standing and small scale (enterprises of Class C and Class D); taxpayers may, on the basis
of the completeness of accounting books, in combination with the tax source scale, be classified as enterprises with abundant tax
source and credible accounting bylaws, enterprises with deficient tax source but credible accounting bylaws, enterprises with abundant
tax source but incredible accounting bylaws, and enterprises with deficient tax source and incredible accounting bylaws in accordance.
IV.
Administration of Primary Taxpayers
In regard to the primary enterprise income tax payers, the taxation authorities shall mainly carry out all-sided administration, focus
on supervision and control of tax sources and daily administration, take tax source analysis and foresee as well as tax payment evaluation
as the means, and practice all-round and delicate administration at all stages.
(1)
Supervision and control of tax sources. The taxation authorities shall reinforce daily administration, fully grasp the taxpayers’
dynamic changes in respect of production, operation, funds turnover, accounting conditions, tax-related indices (including revenues,
costs, expenses, profits, amount of taxable income, amount of payable income taxes) in an all-round way, collect the fundamental
information on production, operation, financial management and the administration information on the range of changes in consumption
of energy and materials, acquaint themselves with the market situation and profit rate situation of the industry to which the taxpayers
belong, as well as set up and elevate an index parameter system on accounting and taxation.
(2)
Administration of primary tax-related matters. Emphasizing doing a good job in the following works:
(a) The taxation authorities shall strictly examine on the base of the formulated procedures and standards, before consenting any
approval, the enterprise income tax exemptions or reductions, pre-tax deduction of property losses, pre-tax deduction of management
expenses drawn by the head office, pre-tax deduction of technical advancement fees drawn in consolidation, and shall operate properly
in the aspect of verifying and archiving the documents on the projects for which approval is cancelled.
(b) The taxation authorities shall reinforce the administration of tax-related matters, such as enterprises’ investment, merger, division,
associated transactions, etc., analyze and decide whether the application of taxation policies is right, whether the determination
of the appraisable cost of assets is correct, and whether there is any intended tax evasion
(c) The taxation authorities shall set up a separate ledger for each taxpayer, as well as note down the information on production,
operation, accounting, tax payment, tax exemption or reduction, losses or cover of losses, carry-over of advertisement fees, wage
balance (for enterprises that connect wages with performance), appraisable cost of assets for enterprise restructuring and reform,
depreciation of fixed assets, tax credit against investment of home-made equipment in technical innovation projects, and so on.
(3)
Final settlement and payment. The taxation authorities shall reinforce the publicity and direction of enterprise income tax policies
and the administration on the levy thereof, especially the new enterprise income tax policies, final settlement and payment procedures,
demands and legal obligation in the current year. Intensifying the logic check and information comparison after the filing of tax
returns, and comparing the revenue items and deduction items in tax returns against the relevant items in enterprises’ turnover tax
returns and the sales (business) income, investment income, non-business income and other income in accounting statements. Analyzing
and comparing the deduction items, the tax exemption or reduction items against the data of the deduction of research and development
expenses, tax exemption or reduction, cover of losses, tax credit against investment of home-made equipment, and daily management
ledgers. Utilizing the “one-account” deposit information and the daily administration information to analyze the accuracy of tax
payment adjustment including depreciation of fixed assets, amortization of intangible assets, and “three items” of expenses, etc.
(4)
Tax payment evaluation. The qualified taxation authorities shall evaluate tax payment of primary enterprise income tax payers individually
in each year. Namely, after the end of final settlement and payment of enterprise income tax, they shall make enterprise income tax
payment evaluation of the primary taxpayers one by one on the basis of the annual tax returns of key taxpayers and accounting statements,
tax-related check and examination materials, industrial information, and levy administration information aware of from their daily
management, and shall timely cope with the results of the tax payment evaluation.
(5)
Analysis and forecast of tax sources. The taxation authorities shall, make full use of computerized methods, and take comprehensive
advantages of comparative analysis means, the method of correlation analysis, the method of structural analysis, etc. to make vertical
and horizontal analysis on each key taxpayer in respect of total amount, range of increase, increment, increment contribution rate,
etc. of items such as the amount of income, amount of taxable income, amount of payable income taxes. The taxation authorities concerned
shall timely join into the enterprise to make clear the reasons of the change, analyze the effects on the change of income from following
aspects, including economic change, taxation policies, and levy administration situation, etc, and take interrelated measures in
time if the conterminous amount or range of increase or decrease of any relevant item is relatively large.
V.
Administration of Ordinary Taxpayers Subject to Levy of Tax upon Check of Accounts
As far as ordinary enterprise income tax payers subject to levy of tax upon check of accounts are concerned, the taxation authorities
shall strengthen the supervision and control of tax sources by sticking to fastening on the administration of matters, taking industrial
administration as the key point and tax payment evaluation as the means.
(1)
Administration of tax-related matters.
(a) Run excellently in examination, approval, and archival administration. The taxation authorities shall pay more attention to investigation,
verification, examination, approval and check of the matters subject to approval including enterprise income tax exemption or reduction,
property losses, administration fees, technological development fees, tax credit against investment of home-made equipment, and shall
improve the archival filing and follow-up management of the projects for which approval is cancelled.
(b) Establishing ledgers separately. When required by the actual situation of administration, the taxation authorities shall clarify
the relevant information to be handed over at the time of filing tax returns and shall run ledger-based administration of the continuous
pre-tax deduction items, such as cover of losses, tax exemption or reduction, wage balance (for enterprises connecting wages with
performance), assessable cost of assets in enterprise restructuring or reform, depreciation of fixed assets, advertisement fees,
tax credit against investment of home-made equipment in technical renovation projects, etc..
(c) Reinforcing the administration of enterprises established newly and enterprises in deficit. The taxation authorities shall timely
carry out follow-up administration of newly established enterprises, congregate the information on their production, operation and
their industry, as well, push them to make accounting exactly, and file enterprise income tax returns correctly. For enterprises
in deficit, especially the enterprises which have been in deficit for several continuous years and those contradicting the boom industry
to which they belong, the taxation authorities shall clarify the real reason of their losses, whether the losses are brought from
transfer of profits between associated enterprises or by other ways of tax evasion, or whether any enterprise forms losses by working
out false account books.
(2)
Final settlement and payment. The taxation authorities shall pay more attention to the tax payment adjustment of income tax and accounting
differentia items, tax exemption or reduction policies and final settlement and payment demands to make tax payment publicity, policy
guidance and interpretation, and elevate the quality of enterprise income tax returns. They shall strive to accelerate tax returns
and payment in order to assure the enterprise income taxes to be turned over to the treasury in time.
(3)
Tax payment evaluation.
(a) The taxation authorities shall gather the materials of tax payment evaluation such as the proportion of input to output in different
industries, the proportion of products to energy consumption, the average industrial profit rate, and the average industrial tax
burden, etc., and shall define enterprise income tax payment evaluation index systems for different industries.
(b) The taxation authorities shall further summarize the rules of the industry, set up the enterprise income tax payment evaluation
models and the index parameters, and also build the industrial enterprise income tax payment evaluation mechanisms, through making
investigation and analysis enterprise by enterprise in a same industry.
(c) The taxation authorities shall attach more attention to make tax payment evaluations on the abnormal tax payment enterprises which
largely deviate from the index parameters, make slight profits in the whole year, file returns of zero tax burden or have been in
loss for 3 continuous years.
(4)
Routine inspections. The taxation authorities shall unite routine management with the prepayment of income tax, emphasize examining
the authenticity of the affairs of enterprises that make abnormal enterprise income tax payment, for example, consumption of materials
and energy, employee wages and pre-tax deduction of other costs and expenses. They shall intensify the management of associated dealings,
stress supervising and controlling whether enterprises transfer profits by making use of the situation that the associated party
is within a tax holiday, or a period of losses, and so on.
VI.
Administration of Taxpayers Subject to Levy of Tax upon Assessment of the Amount.
In term of the enterprise income tax payers subject to levy of tax upon assessment of the amount, the taxation authorities shall mainly
surround normal tax returns of taxpayers and make reasonable assessment, and by means of domiciliary administration, investigation
and verification, elevate the authenticity, accuracy and entirety of tax returns, and gradually show the enterprises to turn to the
method of tax levy upon check of the account.
(I)
Domiciliary administration. The taxation authorities shall communicate regularly with the administrative departments for industry
and commerce, and acquaint timely themselves with taxpayers’ domiciliary changes by comparing the domiciles registered by the taxation
authorities and those registered by the administrative departments for industry and commerce. The bureaus of state taxes and those
of local taxes shall reinforce regular communication on the number of enterprises newly established that have made tax registration,
the number of modified enterprises, the number of enterprises that have moved away, and the number of nullified enterprises, etc.,
and shall contact each other at regular intervals and share mutual information, so that prevent omissions in levy and administration.
(II)
Identification and adjustment of tax levy upon assessment of the amount.
1. After investigation, the taxation authorities shall clarify information about enterprise income tax payers subject to levy of tax
upon assessment of the amount in the aspect of production, operation, financial management, and performance of tax payment obligation,
etc., so as to provide ways to determining levying enterprise income tax.
2. In light of the taxpayers’ industrial characteristics in respect of production and operation, the taxation authorities shall take
full consideration into location, operational scale, income level and profit level in the same class of enterprises in the same region,
and assess the amount of payable income taxes or rate of taxable income enterprise by enterprise through classification, so as to
make sure the tax levy upon assessment of the amount to be fair and reasonable.
3. In light of daily circuit inspection, the taxation authorities shall command the major changes in taxpayers’ production and operation
scope, and the major business, and shall adjust the amount of taxable income or the rate of taxable income timely. If an enterprise
accords with the conditions for tax levy upon check of accounts, the taxation authority shall adjust the way of collection and operate
the tax levy upon check of accounts timely.
4. The taxation authorities shall strengthen management for taxpayers subject to collection upon assessment of the rate of taxable
income tax by differentiating the different methods of assessment. As far as the taxpayers whose rates of taxable income are determined
on the basis of the sales revenues are concerned, the taxation authorities shall consolidate the supervision and control of the sales
(business) revenues on the accounting statements, and compare the total amount of the enterprise income tax revenues which enterprises
declare with the total amount of VAT and business tax revenues they declared on time. In term of the taxpayers whose rates of taxable
income are determined on the basis of costs and expenditures, the taxation authorities shall strengthen the control and administration
of the authenticity of costs and expenditures by strengthening the administration of invoices, wage forms, lists on the exit of materials
from the warehouse and other expense vouchers
5. The taxation authorities shall guide the taxpayers subject to levy of tax upon assessment of the amount of enterprise income tax
to set up accounts and bylaws. They shall, by means of strengthening tax payment guidance and policy publicity, concentrative trainings,
individual guidance, etc., elevate the accounting level of the enterprises, and make the enterprises gradually turn to the method
of tax levy upon check of accounts. They shall guide and regulate public intermediary institutions to assist the taxpayers subject
to levy of tax upon assessment of the amount of enterprise income tax in setting up accounts and bylaws, and to record accounts on
behalf of those enterprises.
6. The assessed amount of payable income taxes shall be divided monthly and quarterly, and the taxpayers shall be propelled to file
tax returns or make prepayment by month or by quarter within the prescribed period. The taxation authorities shall urge the enterprise
income tax payers subject to levy of tax upon assessment of the rate of taxable income to do a nice job in their year-end final settlement
and payment.
VII.
Actively Exploring into the Administration by Different Industries.
On the basis of territorial and classified administration, the taxation authorities shall probe into the administration by different
industries, and shall mainly do a nice job in the work as follows.
(1)
Control and administration of costs and expenses. The taxation authorities shall carry out industrial investigation and clarify business
operation including production, operation and accounting, such as the process flow, the ratio of input to output, the energy consumption,
the stock of materials, etc, and finance accounting information, and shall find out the intrinsic rule for administration of costs
and expenses.
(2)
Analyzing revenues, tax burdens and flexibility at regular intervals. The analysis of the yearly quarterly and monthly enterprise
income tax revenues of different industries shall be intensified. Researching to set up a scientific and practical industrial enterprise
income tax revenue forecast model, and improving the revenue forecast mechanisms. The flexibility and macro-tax burden increase of
enterprise income tax revenues in different industries shall be outstandingly analyzed, horizontal and vertical comparison shall
be made, the bottleneck shall be found out, and the administering measures shall be intensified.
(3)
Tax payment evaluation. The taxation authorities shall implement typical investigations as well as comprehensive analysis and estimation,
set up the index systems for profit rates, average tax burden, average material consumption and energy consumption, input and output,
etc. of different industries, and in view to the factors of such industries, for example, macro-data, industrial historic data, and
the data collected in the administration, reasonably determine the pre-warning value. On the basis of clearly knowing the industrial
rules, they shall set up mathematical models on industrial evaluation. They shall also make full use of the models and the method
of comparative analysis to make industrial evaluations.
(4)
Inspections. By means of daily management and industrial evaluation, the key inspections and special industrial inspections shall
be made by the taxation authorities on the industries in which the tax burden rate is obviously low or the daily management is problematic,
the flaws in administration shall be found, and the administering measures shall be improved.
VIII.
Administration of Taxpayers of Special Types
(I)
Consolidated (combined) tax payment enterprises, group enterprises and their member enterprises.
1. Examination, approval and checks. Before granting the approval, the taxation authorities shall rigorously examine and approve the
enterprises’ applications such as property losses, administration fees drawn in consolidation, technological development fees, tax
exemption or reduction, income tax credit against investment of home-made equipment, etc., do a nice job in the follow-up administration
of enterprise income tax examination and approval items that have been called off or delivered to the lower authorities for administration,
and set up corresponding administration bylaws and administration ledgers.
2. Information feedback. The taxation authorities shall, be aware of the production and operation of consolidated (combined) tax payment
enterprises and their member enterprises at regular intervals, as well as their accounting bylaws and the implementation and changes
thereof, and shall propel the member enterprises to submit a “List of Feedback of Tax Payment Information of Member Enterprises of
Consolidated (Combined) Tax Payment” at the appointed time, and do a nice job in ledger-based administration of the feedback information.
3. Associated enterprises business. On the basis of the types and nature of business transactions, the taxation authorities shall
carefully analyze and confirm the amount of business transactions, appraise whether the business transactions are reasonable, whether
they accord with the ordinary operational routines, and whether the prices and fees paid or charged for business transactions are
the fair transaction prices. If any price or fee is the unfair transaction price, corresponding method shall be selected to make
tax payment adjustment. The taxation authorities shall attach more attention to the administration of the business transactions to
which either party is within the period of tax reduction, tax exemption or period of loss while the other party is within the profiting-making
period or tax-levying period, so as to hinder consolidated (combined) tax payment enterprises and their member enterprises from evading
taxes by using associated transactions.
4. On-the-spot supervision. The taxation authorities shall strictly control on-the-spot supervision over the member enterprises of
consolidated (combined) tax payment, make daily inspections at regular intervals, effectively carry out the work of turning the supplementary
taxes over to the treasury, and timely deliver the inspection results to the capable taxation authorities at the localities of the
headquarters of the consolidated (combined) tax payment enterprises.
5. Joint audit. The taxation authorities shall explore effective joint taxation audit, enhance the cooperation of the taxation authorities
at the localities of the enterprise headquarters and those at the localities of the member enterprises, advance steadily the rationality
and accuracy checks of the financial management, production, operation and business transactions of the consolidated (combined) tax
payment enterprises which implement trans-regional business operation, their group enterprises and their member enterprises, as well
as their tax returns, so that the taxation authorities in different areas may operate joint taxation audit of the consolidated (combined)
tax payment enterprises, their group enterprises and their member enterprises at the same time.
(II)
Public institutions, social organizations and private non-enterprise entities.
1. Strengthening registration management. The taxation authorities shall communicate regularly with the administrative departments
of industry and commerce, of civil affairs, of education, of health, etc., confirm public institutions, social organizations and
private non-enterprise entities to carry out the procedures for legal person registration, non-profit-making legal person registration,
and tax registration, and timely subject them to income tax administration.
2. Enhancing the administration of tax-exempted income. The proof documents on fiscal allocations, the proof documents on incorporating
governmental funds into budgetary administration or special-account administration of extra-budgetary funds, the ratification documents
of the administrative department of public finance for not turning the funds over to the special fiscal account for administration,
the proof documents on allocation of special subsidy income, the reply documents on charge of membership fees, the proof documents
on government fund supports, etc. shall be paid more attention to check by the taxation authorities.
3. Strengthening tax- free administration of non-profit organizations. The non-profit organizations must fulfill legal person registration,
shall not target at making profits but engaging in public welfare service activities. The institutions’ properties and proceeds shall
not be distributed, and the properties remaining after nullification of the institutions shall be used for public welfare purposes.
The contributors shall not preserve or enjoy any property right over the contributed properties, while the earnings of the working
staff and the administrators shall be controlled at the range of the local average level, and the institutions’ properties shall
not be distributed in any disguised form, otherwise they shall not be under tax-exemption administration.
4. Boosting up the administration of costs and expenses. The taxation authorities shall be in strict accordance with the prescribed
scope and rates to calculate the costs, expenses and losses allowed for pre-tax deduction. They shall calculate separately the costs
and expenses concerning taxable income and those relevant to tax-exemption income. If such costs and expenses are not easy to be
distinguished, the taxation authorities shall reasonably confirm the apportioning proportion of the expenditure items relevant to
the taxable income to the expenditure items relevant to the tax-exemption items.
5. Reinforcing the administration of financial and accounting system. The taxation authorities shall require public institutions,
social organizations and non-enterprise private entities to strictly carry out the accounting bylaws for non-profit organizations,
or strictly implement the accounting bylaws for enterprises if transformed into enterprises.
6. Enhancing checks. The taxable income and tax-exemption income in the tax returns and the accounting statements and the information
on daily administration shall be checked and compared by the taxation authorities. They shall analyze the tax payment adjustment
of the deduction items and the rationality of all items of expenditures.
