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CIRCULAR OF THE STATE ADMINISTRATION OF TAXATION ON INTENSIFYING INVESTIGATION INTO AND ANALYSIS OF TRANSFER PRICING

Circular of the State Administration of Taxation on Intensifying Investigation into and Analysis of Transfer Pricing

Guo Shui Han [2007] No. 363

The state taxation bureaus and local taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central
Government, and cities specifically designated in the state plan,

With a view to regulating the investigation into and analysis of the cases concerning transfer pricing of all regions and enhancing
the quality of such investigations, the related issues are hereby clarified as follows in accordance with Article 51 of the Detailed
Rules for the Implementation of the Law of the People’s Republic of China on the Administration of Tax Collection and the related
provisions in the Rules of the State Administration of Taxation for the Taxation Management Rules for the Businesses between Associated
Enterprises (Guo Shui Fa [2004] No. 143 ):

1.

Every region shall intensify the functional risk analysis of the enterprises under investigation, and the enterprises that accept
the transfer pricing investigation shall fill in the Analysis Form on Enterprise Functional Risks. The competent taxation authority
shall fill in the Confirmation Form on the Analysis of Enterprise Functional Risks in light of the Analysis Form on Enterprise Functional
Risks as filled in by the enterprise and by referring to other related conditions it has known through investigation, and shall submit
these two forms to the State Administration of Taxation together.

2.

Every region shall intensify the related financial analysis of associated transactions conducted by the enterprises under investigation,
and fill in the Financial Analysis Form on the Associated Transactions between Enterprises on the basis of anti-tax avoidance investigation,
and report it and the archival filing report and the case settlement report to the State Administration of Taxation.

Attachments:

1.

Analysis Form on Enterprise Functional Risks (omitted)

2.

Confirmation Form on the Analysis of Enterprise Functional Risks (omitted)

3.

Financial Analysis Form on the Associated Transactions between Enterprises (omitted)

State Administration of Taxation

March 27, 2007



 
State Administration of Taxation
2007-03-27

 






CIRCULAR OF THE MINISTRY OF COMMERCE CONCERNING MATTERS ABOUT REINFORCING THE ADMINISTRATION OF PROCESSING TRADE

Circular of the Ministry of Commerce Concerning Matters about Reinforcing the Administration of Processing Trade

Shang Chan Fa [2007] No.133

In order to further perfect the administration of processing trade, encourage processing trade enterprises to optimize structure,
improve economic performance, independently innovate and actively perform social responsibilities, restrict and decrease activities
of processing trade enterprises conducting the processing trade with high consumption of energy, serious pollution of environment
and low added value, effectively accelerate the transformation and upgrading of processing trade and promote the sound development
of processing trade, the competent departments of commerce at various levels shall ceaselessly reinforce system construction in the
administration of processing trade business, check the business qualification and processing production capacity of processing trade
enterprises as well as do well in access administration. The related matters are hereby notified as follows:

1.

Reinforcing the system construction of the processing trade administrative departments at each level

(1)

Rigorously administering the power of examination and approval. The competent commerce departments at each level shall, strictly according
to the provisions on examining and approving organ and graded examination and approval in the Interim Measures for Administrating
Examination and Approval of Processing Trade, exercise the power of examination and approval over processing trade business. When
delegating the power of examination and approval to lower levels, the provincial competent commerce departments shall observe the
related provisions and file the related situation with the Ministry of Commerce for record. The examining and approving organs at
each level shall issue the Certificate on Operation Situation and Production Capacity of Processing Trade Enterprises and the Approval
Certificate for Processing Trade Business to enterprises by using the e-networked approval/administration system for processing trade.
The related data on such certificates shall be put into the database of the Ministry of Commerce for unified administration. Any
examining and approving organ may not issue any certificate by any other means.

(2)

Attention shall be paid to daily statistical analysis. The competent commerce departments at each level shall pay attention to gathering
the statistical data regarding the production, operation, taxation, environmental protection, energy consumption, number of workers,
wage level, payment of staff’s social insurances, etc., of the local processing trade enterprises, summarize the situation and experience
in using advanced technical equipment, obtaining patents and building self-owned brands by them, and file the related information
with the higher competent commerce departments for statistical summary.

2.

Perfecting the access management for processing trade enterprises

(1)

Inspection on the operation situation and production capacity of processing trade enterprises shall be reinforced. For determining
an enterprise’s qualification for engaging in processing trade business as well as examining and approving processing trade business
by the examining and approving organ, the Certificate on Operation Situation and Production Capacity of Processing Trade Enterprises
(hereinafter referred to as the Production Capacity Certificate) shall be deemed as an important basis. When applying for engaging
in processing trade business, an enterprise shall truthfully report each item listed in the Production Capacity Certificate, and
the competent commerce departments at each level shall make on-the-spot investigation and make examination and approval in accordance
with the actual situation. The enterprise shall provide the evidentiary documents or materials in relation to the reported contents
when necessary. The competent commerce department may not approve any enterprise failing to pass the check on operation situation
and production capacity to engage in processing trade business.

(2)

Incorporating the indices about environmental protection, energy consumption, employment and equipment level, etc., into the scope
of check on operation situation and production capacity.

(a)

Processing trade enterprises shall be urged to strictly carry out environmental protection standards and encouraged to save energy
and reduce energy consumption. A processing trade enterprise’s major discharge indices such as sulfur dioxide (SO2) index, chemical
oxygen demand (COD) index, etc., shall reach the requirements of the environmental protection departments, and its comprehensive
energy consumption for gross unit output value may not be higher than the local average level. If any enterprise fails to reach the
standards for environmental protection and energy consumption or commits any environment responsible accident, it shall be prohibited
from engaging in processing trade business.

(b)

Processing trade enterprises shall be urged to improve the employment system. A processing trade enterprise shall go through employment
registration formalities as required at the local labor security department, care for workers’ welfare and respect the related local
provisions on minimum wage level and social insurances payment. Where any enterprise fails to go through employment registration
formalities as required, fails to reach the minimum wage level at its locality or violates the related provisions at its locality
on social insurance payment, engagement in trade business may not be approved; as for any such enterprise approved prior to the issuance
of the present Circular, the competent commerce department shall urge it to correct within a fixed time limit, where it fails to
do so, the competent commerce department shall cancel its qualification for engaging in processing trade business.

(c)

The elimination of outdated production capacity shall be accelerated. The competent commerce departments at each level shall effectively
implement the Decision of the State Council Concerning the Promulgation of the “Interim Provisions on Promoting Industrial Structure
Adjustment” for Implementation (Guo Fa [2005] No.40), and in light of the Catalogue for the Guidance of Industrial Structure Adjustment,
forbid the enterprises using outdated production technical equipment as listed in the eliminated category from operating processing
trade business, and may not approve any enterprise to undertake processing trade business for the purpose of producing any outdated
product as listed in the eliminated category. They shall urge the processing trade enterprises, which use technologies and equipment
as listed in the restricted category or produce products listed in the restricted category, to accelerate transformation and upgrading,
and may not approve any new enterprise to undertake processing trade business by using technologies and equipment as listed in the
restricted category any more.

3.

Delegating the power of examination and approval on the domestic sale of processing trade to the lower levels

For the purpose of adapting to the development situation of processing trade and strengthening the administration of processing trade,
from July 1st, 2007, when any processing trade enterprise applies for selling bonded import materials in domestic market, the application
shall be accepted, examined and approved by the original competent commerce department issuing the Approval Certificate for Processing
Trade Business according to the Interim Measures for Examining and Approving the Domestic Sales of Bonded Import Materials of Processing
Trade. In case any commodity to be sold in domestic market involves quota, license or any other special administrative measure, it
shall still be submitted to the provincial competent commerce department or the Ministry of Commerce for approval as required.

The competent commerce departments at each level shall, by considering the requirements mentioned above and the actual situation of
the locality, perfect each control measure, do well in self-inspection and rectification, find out the real situation of all the
processing trade enterprises within your respective jurisdiction and timely report the problems and situation found out. The provincial
competent commerce departments shall supervise the examination and approval organs at lower levels, handle and report behaviors of
examining and approving by exceeding power or issuing certificate not through the e-networked approval/administration system for
processing trade once found out, work hard in statistical analysis and summarize the experiences of outstanding entities, timely
report them to the higher authorities as well.

The Ministry of Commerce

April 12, 2007



 
The Ministry of Commerce
2007-04-12

 






CIRCULAR OF THE MINISTRY OF COMMERCE AND THE STATE ADMINISTRATION OF FOREIGN EXCHANGE CONCERNING FURTHER STRENGTHENING AND STANDARDIZING THE EXAMINATION AND APPROVAL OF FOREIGN DIRECT INVESTMENT IN REAL ESTATE INDUSTRY

Circular of the Ministry of Commerce and the State Administration of Foreign Exchange concerning Further Strengthening and Standardizing
the Examination and Approval of Foreign Direct Investment in Real Estate Industry

Shang Zi Han [2007] No.50

The authorities responsible for commerce and foreign exchange in all provinces, autonomous region, municipalities, and cities specifically
designated in the state plan, and Xinjiang Production and Construction Corps:

Six departments of the State Council (namely, Ministry of Construction, Ministry of Commerce, National Development and Reform Commission,
People’s Bank of China, State Administration for Industry of Commerce and State Administration of Foreign Exchange) jointly issued
Opinions on Regulating the Access to and Administration of Foreign Investment in the Real Estate Market (Jian Zhu Fang [2006] No.
171, hereinafter referred to as the Opinions) for the purpose of standardizing foreign fund access to and administration of real
estate market. The local authorities strictly implemented the prescriptions and requirements in the Opinions and made some substantial
achievement. However, some problems still remain in some regions. In accordance with the laws and regulations of foreign investment
and the relevant prescriptions in the Opinions, the relevant particulars concerning further strengthening and standardizing the examination,
approval, record for file and supervision of foreign investment in real estate are hereby notified as follows:

1.

The local commerce authorities shall strictly implement the Opinions and the Circular of the General Office of the Ministry of Commerce
concerning Implementing Circular concerning Standardizing Foreign Fund Access to and Administration of Real Estate Market (Shang
Zi Zi [2006] No. 192), strengthen the examination, approval and supervision of foreign-funded real estate enterprises, and strictly
control foreign investment in top grade real estate.

2.

Foreign-funded investment in the development and operation of real estate market shall observe the principle of project company.

(1)

In the case of applying for opening a real estate company, the right of land use and ownership of real estate building, or the booking
sale/purchase of land use or real estate right signed with land administration authority, land developer/ the owner of real estate
building. The examination and approval authority may not approve it if the aforesaid requirements are not met.

(2)

Should such enterprises as have established new-added real estate or business of foreign-funded enterprises, and as are engaged in
the development and operation of new real estate project, the enterprises hereof shall, in light of the relevant laws and rules,
apply to the examination and approval authority for the relevant procedures concerning increasing business scope or extending business
scale.

3.

The merge and acquisition or investment in domestic real estate enterprises by means of return investment (including the same actual
manipulator) shall be strictly controlled. Foreign investor may not alter the means of actual manipulator of domestic real estate
enterprises, evade the examination and approval upon foreign-funded real estate. Should the foreign exchange authority discovers
the foreign-funded real estate enterprises established by such means as deliberate evasion and false statement, the authority hereof
shall investigate it for remitting capital and the additive yield of its own accord to evade foreign exchange responsibility.

4.

Foreign investor engaged in domestic real estate development or operation shall abide by the principle of business existence, lawfully
apply for establishing foreign-funded enterprises in real estate and engage in the relevant business in accordance with the approved
business scope. The Chinese and foreign parties to the foreign-funded real estate enterprise shall not conclude the clauses guaranteeing
fixed return or the fixed return in disguised form of any party by any means.

5.

The local authority responsible for examining and approving the establishment of foreign investment shall record for file in the Ministry
of Commerce.

6.

The authority responsible for foreign exchange administration and designated foreign exchange bank shall not handle procedure of settlement,
sale, and remittance of capital exchange for such foreign-invested real estate enterprises as have not completed the procedure of
record for file in the Ministry of Commerce or have not passed the joint annual inspection upon foreign-funded enterprises.

7.

With regard to the foreign-funded real estate enterprises examined and approved by local authority hereof against the law, the Ministry
of Commerce shall investigate and rectify it, the authority of foreign exchange administration shall not handle such procedures as
foreign exchange registration hereto.

Ministry of Commerce

State Administration of Foreign Exchange

May 23, 2007



 
Ministry of Commerce, State Administration of Foreign Exchange
2007-05-23

 






CIRCULAR OF THE GENERAL ADMINISTRATION OF TAXATION ON REVISING THE DECLARATION FORM OF EXPORT REBATES (EXEMPTION) FOR EXPORTED GOODS

The General Administration of Taxation

Circular of the General Administration of Taxation on Revising the Declaration Form of Export Rebates (Exemption) for Exported Goods

Guo Shui Fa No.2 [2006]

Bureaus of State Taxes in all provinces, autonomous regions, municipalities under direct control of the Central Government, and cities
specially designated in the state plan:

In accordance with the Detailed Implementation Rules of the Tax Collection and Administration Law of the People’s Republic of China
and with relevant provisions of the General Administration of Taxation, the General Administration of Taxation, after studies, decides
to revise relevant contents of the existing Declaration Form of Export Rebates (Exemption) for Exported Goods, and to start to use
the new edition. And this circular is hereby released on relevant issues:

I.

As of the date of January 1, 2006, the new edition of Declaration Form of Export Rebates (Exemption) for Exported Goods shall start
to be used in all places at the same time. Compared with the old edition, the avow of the applicant is added to the new edition of
Declaration Form of Export Rebates (Exemption) for Exported Goods, i.e. the declarant shall avow in the form of new edition these
sentences as follows: “the contents filled in all columns of this form is true and lawful, in line with the situation of actually
exported goods, and the export business declared this time is not such business as ‘Four Selfs and Three Nos (the Four Selfs are
the investor or intermediary’s bringing clients itself, bringing supply of goods itself, bringing the bill of exchange itself and
declaring at the customs itself, and the Three Nos are the export enterprise’s having no export goods, no suppliers of goods and
no foreign businessmen)’ and other which is against the normal export business procedures. Otherwise, the enterprise hereof is ready
to assume the relevant liabilities because of this”.

II.

The Declaration Form of Export Rebates (Exemption) for Export Goods revised this time includes these two kinds as follows:

1.

The Summarizing Declaration Form of Export Rebates for Foreign-trade Enterprises (Annex I)

2.

The Summarizing Form of Declaring Credit Exemption and Export Rebates for Manufacturing Enterprises (Annex II)

III.

This circular shall enter into force as the date of January 1, 2006. And the concrete implementation date shall refer to the export
date specified in the Declaration Form for Export Goods (exclusively used for export rebates).

Annexes:

1.

The Summarizing Declaration Form of Export Rebates for Export Goods for Foreign-trade Enterprises (omitted)

2.

The Summarizing Form of Declaring Credit Exemption and Export Rebates for Export Goods for Manufacturing Enterprises (omitted)

The General Administration of Taxation

January 4, 2006



 
The General Administration of Taxation
2006-01-04

 






REPLY OF THE STATE ADMINISTRATION OF TAXATION CONCERNING THE ISSUE OF TAX COLLECTION AND EXEMPTION ON THE INCOME OBTAINED BY THE WORLD TOURISM ORGANIZATION IN CHINA

State Administration of Taxation

Reply of the State Administration of Taxation concerning the Issue of Tax Collection and Exemption on the Income Obtained by the World
Tourism Organization in China

Guo Shui Han [2006] No. 35

The state administration of taxation of Jiangsu Province,

Your Request for Instructions concerning the Issue of Tax Collection and Exemption on the Income Obtained by the World Tourism Organization
for Providing Design Labor Services (Su Guo Shui Fa [2005] No.244 ) has been received; we hereby make reply as follows:

In accordance with Item (10), paragraph 2 of Section One of Article 1 , and item (1) of Section Nine of Article 3 of the United Nations
Convention on the Privileges and Immunities of the Specialized Agencies that China have signed, the direct tax shall be exempted
on the income, which is obtained by the World Tourism Organization in China. Therefore, the income tax shall be exempted from the
income, which is obtained by the Organization that it provides design labor service to the people’s government of Wujin District
of Changzhou City.

State Administration of Taxation

January 12, 2006



 
State Administration of Taxation
2006-01-12

 






CIRCULAR CONCERNING TRANSMITTING CIRCULAR ON ADJUSTING THE TAX-REFUND RATE FOR THE EXPORTS OF COAL TAR AND OTHER PRODUCTS AND CIRCULAR ON CONTINUOUSLY SUSPENDING THE TAX-REFUND FOR THE EXPORT OF SOME FERTILIZERS

General Office of the Ministry of Commerce

Circular concerning Transmitting Circular on Adjusting the Tax-refund Rate for the Exports of Coal Tar and Other Products and Circular
on Continuously Suspending the Tax-refund for the Export of some Fertilizers

The competent department of commerce in all provinces, autonomous region, municipality directly under the Central Government, cities
specifically designated in the state plan:

Circular of the General Office of the Ministry of Commerce concerning Transmitting Circular of the Ministry of Finance, the State
Administration of the Taxation of the People’s Republic of China, on Adjusting the Tax-refund Rate for the Exports of Coal Tar and
Other Products (Cai Shui [2005] No.184) and Circular of the Ministry of Finance, the State Administration of Taxation, the National
Development and Reform Commission of the People’s Republic of China, on Continuously Suspending the Tax-refund for the Export of
some Fertilizers (Cai Shui [2005] No.192) is hereby transmitted to you for informing the enterprises’ implementation. Once problems
arise in the process of its implementation, please reflect them to the Ministry (Department of Planning and Finance).

Appendix:

1.

Circular of the Ministry of Finance, the State Administration of the Taxation of the People’s Republic of China, on Adjusting the
Tax-refund Rate for the Exports of Coal Tar and Other Products (omitted)

2.

Circular of the Ministry of Finance, the State Administration of Taxation, the National Development and Reform Commission of the People’s
Republic of China, on Continuously Suspending the Tax-refund for the Export of some Fertilizers (omitted)

General Office of the Ministry of Commerce

January 23, 2006



 
General Office of the Ministry of Commerce
2006-01-23

 






PROVISIONS GOVERNING THE ADMINISTRATIVE PUNISHMENT PROCEDURES OF ENTRY/EXIT INSPECTION AND QUARANTINE






General Administration of Quality Supervision, Inspection and Quarantine

Order of the General Administration of Quality Supervision, Inspection and Quarantine

No.85

The Provisions Governing the Administrative Punishment Procedures of Entry/Exit Inspection and Quarantine, which were adopted through
discussion at the executive meeting of the General Administration of Quality Supervision, Inspection and Quarantine on December 31,
2005, are hereby promulgated, and shall come into force as of April 1st, 2006.

Director General of General Administration of Quality Supervision, Inspection and Quarantine, Li Changjiang

January 28, 2006

Provisions Governing the Administrative Punishment Procedures of Entry/Exit Inspection and Quarantine

Chapter I General Provisions

Article 1

For the purpose of regulating the actions of administrative punishment on entry/exit inspection and quarantine, the present Provisions
are formulated in accordance with the Administrative Punishment Law of the People’s Republic of China and the relevant laws and administrative
regulations on entry/exit inspection and quarantine.

Article 2

Where any citizen, legal person, or other organization violates any of the provisions of relevant laws, administrative regulations,
or rules on entry-exit inspection and quarantine, and shall be subject to administrative punishment, he/it shall be given administrative
punishment according to the provisions of the present Procedures.

Article 3

The following basic principles shall be followed in the work of administrative punishment on entry/exit inspection and quarantine:

1.

Taking facts as the basis and law as the yardstick. ;

2.

Justness and openness;

3.

Combining punishment with education; and

4.

Protecting the lawful rights and interests of citizens, legal persons, and other organizations.

Article 4

The General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ) shall be responsible for the administration
work of administrative punishment on entry/exit inspection and quarantine nationwide and the supervision and inspection thereof.

Each entry/exit inspection and quarantine bureau directly under the GAQSIQ shall, according to its own functions, be responsible for
the administrative punishment work of its own organ, and shall conduct supervision and inspection on the administrative punishment
work of the branches subordinated to it.

Each entry/exit inspection and quarantine branch or sub-branch bureau shall be responsible for the administrative punishment work
of its own organ.

Article 5

For those who violate any law or administrative regulation on entry/exit inspection and quarantine and thus a crime is constituted
according to the provisions of the Criminal Law, each entry/exit inspection and quarantine bureau (hereinafter referred to as the
entry/exit inspection and quarantine organ) , shall transfer them to the judicial department in accordance with the Provisions on
the Transfer of Cases of Suspected Crimes by Administrative Law Enforcement Departments in a timely manner, and shall not substitute
administrative punishment for criminal punishment. An entry/exit inspection and quarantine organ shall not substitute such measures
as demanding the payment of inspection and quarantine fees, and etc. for administrative punishment.

Article 6

An entry/exit inspection and quarantine organ shall not impose an administrative punishment of fine two or more times to any party
on a same illicit action..

Article 7

An entry/exit inspection and quarantine organ shall improve its administrative punishment supervision system, and determine the subjective
qualification of the law enforcement according to law, clarify the law enforcement functions, and regulate the law enforcement acts,
impose punishments upon illegal law enforcement activities, as well as strictly implement the administrative law enforcement responsibility
system.

Chapter II Jurisdiction

Article 8

For the case of administrative punishment on entry/exit inspection and quarantine, the entry/exit inspection and quarantine organ
at the place where a law-breaking act is committed shall have jurisdiction. .

A grave case shall be put under the jurisdiction of the entry/exit inspection and quarantine organ directly under the GAQSIQ at the
place where the law-breaking act is committed; and the cases having a grave influence nationwide shall be put under the jurisdiction
of GAQSIQ.

Article 9

In case an entry/exit inspection and quarantine organ discovers that a case is not under its jurisdiction, it shall transfer it to
the entry/exit inspection and quarantine organ that has jurisdiction over it in a timely manner .

The entry/exit inspection and quarantine organ to which the case has been transferred shall not retransfer it to any other organ on
its own initiative; if it believes that the transfer is not proper, it shall report to the common superior organ in dispute for designated
jurisdiction.

Article 10

When two or more entry/exit inspection and quarantine organs have jurisdiction over an administrative punishment case, the entry/exit
inspection and quarantine organ which is the first to file up the case shall have jurisdiction over it, and the entry/exit inspection
and quarantine organ relating to the case shall offer assistance in the investigation of the case and the punishment thereof.

If a dispute arises over jurisdiction between two or more entry/exit inspection and quarantine organs, it shall be reported to the
common superior organ for the designated jurisdiction.

For any administrative punishment case involving two or more entry/exit inspection and quarantine bureaus directly under the GAQSIQ,
or for any administrative punishment case that is grave and complicated, the jurisdiction shall be designated by GAQSIQ.

Article 11

A superior entry/exit inspection and quarantine organ may execute jurisdiction over an administrative punishment case under the jurisdiction
of an entry/exit inspection and quarantine organ at a lower level if it believes necessary. Where an entry/exit inspection and quarantine
organ at a lower level believes that an administrative punishment case is grave and complicated, and need to be put under the jurisdiction
of a superior entry/exit inspection and quarantine organ, it may report to the superior entry/exit inspection and quarantine organ
for jurisdiction. A superior entry/exit inspection and quarantine organ may also transfer the case under its jurisdiction to an entry/exit
inspection and quarantine organ at a lower level for jurisdiction if it believes it is necessary.

Article 12

If a case is not under the jurisdiction of an entry/exit inspection and quarantine organ, it shall be transferred to the relevant
competent department for handling.

Chapter III Case Filing and Investigation

Article 13

In case any entry/exit inspection and quarantine organ discovers that any citizen, legal person, or other organization has any act
suspected of violating any law, administrative regulation, or rule on entry/exit inspection and quarantine, and believes it necessary
to give him/it a punishment, it shall file up the case within 10 days from the day of discovery.

Article 14

The department that discovers any suspected violation of law shall fill in a Form of Examination and Approval for Case filing of Administrative
Punishment when applying for filing up a case, and shall have it examined by the department of legal affairs, and report to the person-in-charge
of the organ to decide whether the case shall be filed.

Article 15

If an entry/exit inspection and quarantine organ determines to establish a case and make investigation into it, it shall designate
case investigators within 3 days from the day when it determines to establish the case.

In case any investigator has any direct relationship of interests with the party concerned, it shall withdraw.

Article 16

The investigators shall make overall, objective, and just investigations into the facts of a case, and collect evidence according
to law.

In the course of making an investigation and gathering evidence, the investigators shall be no less than two persons, and shall show
their law enforcement certificate to the parties or the relevant personnel.

The investigators may send an Investigation Notice to the parties or the relevant personnel if they believe it necessary.

The parties or the relevant personnel shall answer the inquiries according to the facts and assist in and cooperate with the investigation,
inspection or on-site survey, and shall not stand in the way.

Article 17

When making an investigation and inquiry to any party or relevant personnel, an Written Records of Investigation shall be made with
the signatures or seals of the investigators, the parties, or the relevant personnel.

Article 18

In the event of on-site survey, a Written Records of On-site Survey shall be made with the signatures or seals of the investigators,
the parties or the relevant personnel. In case there is any witness, the witness on the spot may affix his signature or seal.

Article 19

The investigators may consult, record, or copy the contracts, documentations, invoices, account book, documents, and other materials
relating to the case, or collect evidence by way of sampling, recording, taking photos, videotaping, and other methods.

Under the circumstance where any evidence may be lost or hard to obtain later, and upon the approval of the person-in-charge of the
entry/exit inspection and quarantine organ, it may be registered and preserved in advance. The evidential materials collected shall
be the original copies or the original things. In case it is really difficult to obtain the original copies or the original things,
the entity or individual that submits the evidence may affix its/his signature or seal to the reproduced products, the photocopies
or photos, and mark them with “same as original copies (things)” or text explanation..

Any e-mail, electronic data interchange, and other transmission documents of electronic evidence that is under any of the following
circumstances shall be regarded as having the same effectiveness as the original copy:

1.

Having legal means of electronic certification, which can ensure its truthfulness;

2.

Having been notarized by the public notary organs; or

3.

The parties and the interested parties recognize its objectiveness and truthfulness, and it has been confirmed as valid evidence according
to law.

Article 20

In case such measure as registration on preservation, seizure, detention, or sealing up is taken, a Letter of Determination on Registration
of Articles under Preservation (Seizure) (Detention) (Sealing Up) shall be issued, and a List of Registration on Articles under Preservation
(Seizure) (Detention) (Sealing Up) shall be filled in, which shall bear the signatures or seals of the investigators, parties, and
keepers, and be affixed with a sealing strip or mark. If there is any witness on site, the witness may be asked to affix his signature
or seal.

When making a registration on preservation, seizure, detention, or sealing up, if the party is not present at the scene, a witness
shall be invited to be present, telling him of the situation, and have him affix his signature or seal on the List of Registration
on Articles under Preservation (Seizure) (Detention) (Sealing Up) attached in the Letter of Determination on Registration of Articles
under Preservation (Seizure) (Detention) (Sealing Up), and a public notice shall be posted at the original address of the relevant
articles.

For articles preserved through registration, a decision shall be made on its disposition within 7 days.

Where there is necessity to cancel such measures as registration on preservation, seizure, detention, or sealing up, the Letter of
Determination on Canceling Registration of Articles under Preservation (Seizure) (Detention) (Sealing Up) shall be showed to the
parties, and the List of Cancellation of Registration on Articles under Preservation (Seizure) (Detention) (Sealing Up) shall be
filled in, with the signatures or seals of investigators, parties, and keepers for confirmation, and then the measures for the registration
on preservation, seizure, detention, and sealing up, and etc. shall be cancelled. If there is any witness present, the witness may
be asked for affixing his signature or seal.

The adoption of the aforesaid measures shall be subject to the approval of the leaders in-charge of the entry/exit inspection and
quarantine organ, but under emergency circumstances, the relevant measures may be taken in advance, and then the formalities for
examination and approval shall be made up at a later time.

Article 21

In case any party refuses to affix his signature or seal onto the relevant materials when accepting investigation, the investigators
shall indicate it. Where any witness is present, the witness may be asked to affix his signature or seal.

Article 22

The case investigation shall be terminated within 60 days from the day when the case is established.

Where there is necessity to make an inspection, quarantine, and authentication, the time required shall not be computed in the time
limit as prescribed in the preceding paragraph.

The time limit for investigation on a grave and difficult case may be extended properly upon the approval of the person-in-charge
of the department of legal affairs, but the extension shall not exceed 30 days. If the investigation of the case cannot be completed
within the extended time limit, it shall be reported to the person-in-charge of the entry/exit inspection and quarantine organ to
decide whether the investigation should continue.

Article 23

After the investigation of a case is terminated, the investigators shall submit an Investigation Report on Administrative Punishment
Case, and bring forward their opinions on how to deal with the law-breaking act, and send them to the department of legal affairs
for examination.

Chapter IV Punishment Decision

Article 24

The department of legal affairs shall make an overall examination on the Investigation Report on Administrative Punishment Case and
other materials of a case, and give its examination opinions according to the different circumstances:

1.

If the fact is clear, the evidence is solid, the application of laws, administrative regulations or rules is correct, and the procedures
are lawful, a punishment proposal shall be made;

2.

If there is any error in the application of laws, administrative regulations, or rules, it shall be corrected;

3.

If the fact is not clear, or there is no sufficient evidence, or the procedures are illegal, an investigation shall be made once again;

4.

If the facts of violation could not be established or it has exceeded the time limit for prosecuting against offenders, the case shall
be revoked;

5.

If the law-breaking act is not serious and has been corrected in a timely manner, and does not result in negative effect, no administrative
punishment may be given; or

6.

If the law-breaking act is suspected of constituting a crime, it shall be transferred to the judicial department.

Article 25

Before making a decision on administrative punishment, the department of legal affairs shall make a Notice on Administrative Punishment
and serve it to the parties, and notify the parties of the facts, reasons, and basis for the administrative punishment decision to
be made, and the contents of the administrative punishment, and notify the parties of their rights to make statements and defenses
within three days from the day when they receive the Notice on Administrative Punishment, if they comply with the conditions for
hearing, they shall have the right to request a hearing.

Article 26

Before making a decision on administrative punishment, an entry/exit inspection and quarantine organ shall fully hear the opinions
of the party concerned, and review the facts, reasons, and evidence it puts forward. If the facts, reasons, or evidence provided
by the party can be established, they shall be adopted.

The entry/exit inspection and quarantine organ shall not give a heavier punishment on the party because it/he has made statements,
defenses or applied for a hearing.

In case the entry/exit inspection and quarantine organ plans to make a punishment decision different from the one that has been notified
to the parties formerly, it shall send the Notice on Administrative Punishment once again.

Article 27

In case any party is under any of the following circumstances, it shall be given a lighter punishment:

1.

He/it eliminates or reduces the negative effect of the illegal act on his/its own initiative;

2.

He/it cooperates with the investigation of the illegal acts and has performed any meritorious service;

3.

He/it commits the illegal act under the duress of others; or

4.

Other circumstances under which he/it shall be given a lighter punishment.

Article 28

In case any party is under any of the following circumstances, he/it shall be given a heavier punishment:

1.

He/it commits illegal acts for several times;

2.

The illegal act has resulted in serious consequences; or

3.

He/it obstructs the case investigation, purposely transfers, conceals, or destroys any evidence or provides any false evidence, and
disguises any illegal facts.

Article 29

In case any illegal act of a party violates two or more laws, administrative regulations or rules on inspection and quarantine at
the same time, if the provisions of the said laws, administrative regulations or rules on the legal liabilities coincide with each
other, the party shall be subject to legal liabilities by conjoining different penalties.

Article 30

In case one is subject to any legal liability by conjoining different penalties, and if the illegal act is serious, all the penalties
shall be conjoined; if the illegal act is not serious, some of the penalties or a lighter ones shall apply.

In the case of conjoining different penalties, if there are provisions on fines in two or more inspection and quarantine laws, administrative
regulations, or rules, and the fines shall not be accumulated, the clause with a larger amount of fine shall apply.

In the case of enjoining penalties, if the provisions on the time limit for filing a reconsideration or litigation by the parties
in any entry/exit inspection and quarantine law or administrative regulation involved are different, the time limit which is longer
shall apply.

Article 31

If there is necessity to make a decision on administrative punishment to a case, the department of legal affairs shall fill in a Form
of Examination and Approval for Handling Administrative Punishment Cases, and report it to the person-in-charge of the entry/exit
inspection and quarantine organ for examination and approval.If no punishment is given, or if the case is complicated, or a heavier
administrative punishment may be given, it shall be determined through collective discussion.

Article 32

When a decision on administrative punishment is made, a Letter of Determination on Administrative Punishment shall be made.

The following contents shall be specified in the Letter of Determination on Administrative Punishment:

1.

Name of the party or the name and address of the entity;

2.

Illegal facts and evidence;

3.

Basis for administrative punishment;

4.

Kinds of administrative punishment;

5.

Ways of implementation of administrative punishment and the time limit thereof;

6.

Ways of applying for reconsideration or filing an administrative litigation when the party is not satisfied with the decision on administrative
punishment and the time limit thereof;

7.

Name of the entry/exit inspection and quarantine organ that has made the decision on administrative punishment; and

8.

Date for making the decision on administrative punishment.

The Letter of Determination on Administrative Punishment shall be affixed with the seal of the entry/exit inspection and quarantine
organ that makes the decision on administrative punishment.

Article 33

A decision on administrative punishment shall be made within 30 days from the day when the investigation on a case is terminated.
Where there is necessity to hold a hearing, the decision shall be made within 30 days from the day when the hearing is terminated.

Chapter V Summary Procedures

Article 34

If the illegal facts of a case is clear, and the evidence thereof is solid, and the following administrative punishment shall be given
according to law, the entry/exit inspection and quarantine organ may make a decision on administrative punishment on site by applying
summary procedures:

1.

Warning;

2.

Giving a fine of less than 50 Yuan to a citizen; or

3.

Giving a fine of less than 1000 Yuan to a legal person or other organization.

Article 35

If the law enforcement personnel make a decision on administrative punishment on the spot, they shall show their law enforcement certificate
to the party or his/its representatives on the scene, and issue a Letter of Determination on On-site Administrative Punishment.

The Letter of Determination on On-site Administrative Punishment shall specify the illegal act of the party or his/its representative
on the scene, the time and the place of the illegal act, basis of administrative punishment, kind of punishment, time for making
punishment decision, ways of implementation of punishment and the time limit thereof, and ways of applying for administrative reconsideration
or filing administrative litigation in case the said personnel are not satisfied with the decision on administrative punishment and
the time limit thereof, name of the entry/exit inspection and quarantine organ, and the seal of the organ shall be affixed. The party
or his/its representative on the scene shall affix his signature or seal or press his fingerprint on the Letter of Determination
on On-site Administrative Punishment, which shall then be delivered to the party or his/its representative on the scene after it
is signed by the law enforcement personnel.

In case the party or his/its representative on the scene refuses to affix his signature or seal or refuses to press his fingerprint,
the law enforcement personnel shall indicate it on the Letter of Determination on On-site Administrative Punishment. If there is
any witness present, who may be asked to sign, seal, or press fingerprint, on it.

There shall be no less than two law enforcement personnel present when implementing an on-site punishment.

In case the party or his/its representative on the scene dissents with the determination of the illegal facts, and such facts could
not be proved on the spot, the summary procedure shall not be applied.

Article 36

The law enforcement personnel shall, within 5 days from the day when the on-site punishment decision is made, send a Letter of Determination
on On-site Administrative Punishment to the department of legal affairs of the entry/exit inspection and quarantine organ it subordinates
for archival filing.

Chapter VI Hearing

Article 37

Before an entry/exit inspection and quarantine organ makes any of the following punishment decisions, it shall notify the party he/it
has the right to request a hearing:

1.

Giving a citizen a fine of 10,000 Yuan or more;

2.

Giving a legal person or other organization a fine of 100,000 Yuan or more;

3.

Revoking administrative license or suspending certificate of administrative license;

4.

Suspending the quarantine documentation that has been obtained;

5.

Ordering to stop production or business operations; and

6.

Other conditions that comply with the hearing conditions as prescribed by any law or administrative regulation.

Article 38

In case any party requests a hearing, he/it shall bring it forward within 3 days after the entry/exit inspection and quarantine organ
has notified him/it.

Article 39

An entry/exit inspection and quarantine organ shall serve the Notice on Hearing of Administrative Punishment to the party 7 days before
holding a hearing.

The following matters shall be specified in the Notice on Hearing of Administrative Punishment:

1.

Name of the party or the post_title of the entity;

2.

Time, place and ways for holding the hearing;

3.

Name and post of the chairperson and the clerk;

4.

Notifying the party his/its right to apply for withdrawal; and

5.

Notifying the party to prepare for evidence, notify the witness and other matters concerned.

The Notice on Hearing of Administrative Punishment shall be affixed with the seal of the entry/exit inspection and quarantine organ.

Article 40

A hearing shall be held openly, unless any state secret, business secret or individual privacy is involved.

Article 41

The hearing shall be presided over by the person who is not an investigator in this case as designated by the entry/exit inspection
and quarantine organ. The investigators, the parties, witnesses, and clerks shall take part in the hearing.

A chairperson shall perform the following functions:

1.

Determining the time and place for holding the hearing and notify the participants to the hearing;

2.

Examining the qualification of the participants to the hearing;

3.

Presiding over the hearing, and making inquiries on the facts, evidence of the case, and the relevant laws to be related, and requesting
the hearing participants to provide or make up evidence;

4.

Maintaining the hearing order, and giving warning to those in violation of hearing disciplines or taking necessary measures to stop
them;

5.

Making review on the written records of hearing, and bringing forward examination opinions;

6.

Determining to postpone or terminate the hearing or declaring to terminate the hearing; and

7.

Other functions as prescribed by any law, administrative regulation, or rule.

In case any party believes that the chairperson or the clerk has any relationship of interest with this case, he/it shall have the
right to apply for their withdrawal.

The withdrawal of the chairperson shall be decided by the person in charge of the entry/exit inspection and quarantine organ. The
withdrawal of the clerk shall be decided by the chairperson.

Article 42

The party may take part in the hearing personally, or entrust one to two agents to take part in the hearing.

In case any party entrusts an agent to take part in the hearing, he/it shall submit a power of attorney.

In case any party who is unable to take part in the hearing as scheduled, he/it shall notify the entry/exit inspection and quarantine
organ that holds the hearing.

Article 43

The hearing shall be carried out according to the following procedures:

1.

The chairperson checks the identities of the parties or the agent, and declares the disciplines on the hearing;

2.

The chairperson declares the beginning of the hearing, and notifies the parties of their rights and obligations, and inquires the
parties whether they apply for withdrawal;

3.

The case investigators state the illegal facts of the parties and the evidence thereof, as well as the basis and contents of the decision
on administrative punishment to be made;

4.

The parties make cross-examination and defenses on the facts of the case and the evidence thereof, as well as the basis and contents
for the decision on administrative punishment to be made;

5.

The chairperson makes inquiry on the parties, case investigators, and the witnesses concerning the relevant issues; and

6.

The parties make final statements.

After the hearing finishes, the Minutes of Meeting on the Hearing of Administrative Punishment shall be given to the parties, witnesses,
and the case investigators on the spot with their names signed or seals affixed if it is found to have no error. If the parties refuse
to sign or seal, the chairperson shall indicate it on the Minutes of Meeting on the Hearing of Administrative Punishment.

Article 44

The following matters shall be specified in the Minutes of Meeting on the Hearing of Administrative Punishment:

1.

Nature of the case;

2.

Name of the hearing participants or the name and address of the entity;

3.

Name and post of the chairperson and the clerk;

4.

Time and place for holding the hearing;

5.

The illegal facts, evidence stated by the case investigators, and the legal basis and contents of decision on the administrative punishment
to be made; and

6.

The contents of the statements, cross-examination, and averments of the parties.

Article 45

Under any of the following circumstances, the chairperson may decide to postpone the hearing:

1.

The party is not present due to the justifiable reason;

2.

The reasons for the party to apply for withdrawal can be established, and there is necessity to determine the chairperson once again;

3.

There are new facts to be investigated and verified;

4.

The party is a natural person who loses the capacity to conduct, and it is necessary to wait for his legal agent;

5.

The party is a legal person or other organization, which occurs merger, division, or other matters concerning the alteration of subjects,
and there is necessity to wait for the successors for their rights and obligations; and

6.

Other circumstances under which the hearing needs to be postponed.

Article 46

Under any of the following circumstances, the hearing procedures shall be terminated:

1.

The party concerned fails to attend the hearing without justifiable reasons or quits the hearing without permission;

2.

The party concerned violates the hearing disciplines, and does not obey the chairperson, and the circumstance is serious;

3.

The party concerned dies or terminates;

4.

The party concerned clearly expresses to give up the hearing;

5.

The party concerned occurs matter of alteration of the subject, and the successors of his/its rights and obligations clearly expresses
to give up the hearin

MINISTRY OF COMMERCE ANNOUNCEMENT NO.7, 2006 ON FINAL ARBITRATION ON BENZOFURANOL

Ministry of Commerce

Ministry of Commerce Announcement No.7, 2006 on Final Arbitration on Benzofuranol

[2006] No.7

On August 12, 2004, in accordance with Anti-dumping Regulations of People’ Republic of China, Ministry of Commerce issued an announcement
to start anti-dumping investigation on imported Benzofuranol originating from Japan, EU and the U.S. (hereinafter referred to as
“investigated product”).

Ministry of Commerce issued the preliminary determination on June 16, 2005, confirming that dumping of the investigated product had
taken place and it had caused material injury to China’ domestic industries, and there was a causal relationship between the dumping
and the injury.

As the final arbitration, Ministry of Commerce decided to impose anti-dumping duties on the investigated product. Customs Tariffs
Committee of the State Council will levy anti-dumping duties on the investigated product as of February 12, 2006.

The investigated product is listed under No. 29329910 in the Import and Export Tariffs of the People’ Republic of China.

The anti-dumping duty rates levied on the related companies are listed as follows:

Companies of U.S.:

1.

FMC: 44%

2.

All Others: 113.2%

Companies of Japan: 113.2%

Companies of EU: 113.2%

FMC of the U. S. and ￿￿￿ũҩ￿ʽ￿￿ has signed Prices Commitment Protocol with Ministry of Commerce of PRC (see Appendix 2 & 3),
which shall take effect with this Final Arbitration.

Importers shall, while importing Benzofuranol originating from Japan, EU and the U.S. as of February 12, 2006, pay relevant anti-dumping
duties to General Administration of Customs of PRC. Anti-dumping Duty= Customs Tax Payment Price * Anti-dumping Duty Rate.

The levy of anti-dumping duties on imported Benzofuranol originating from Japan, EU and the U.S. will last 5 years as from February
12, 2006.

The relevant interested parties could apply, in written forms, to the Ministry of Commerce for an interim review during the levy of
anti-dumping duties in accordance with Article 49 of Anti-dumping Regulations of People’ Republic of China.

The relevant interested parties, disagreed with the final arbitration or the levy of the anti-dumping duties, could apply for an administrative
reconsideration or lawsuit in accordance with Article 53 of Anti-dumping Regulations of People’ Republic of China.

Ministry of Commerce

February 12, 2006

 
Ministry of Commerce
2006-02-12

 



ACCOUNTING STANDARDS FOR ENTERPRISES NO. 13 – CONTINGENCIES

The Ministry of Finance

Accounting Standards for Enterprises No. 13 – Contingencies

Cai Kuai [2006] No.3

February 15, 2006

Chapter I General Provisions

Article 1

These Standards are formulated in accordance with the Accounting Standards for Enterprises – Basic Standards for the purpose of regulating
the recognition and measurement of Contingencies, and the disclosure of relevant information.

Article 2

The term ” Contingencies” refers to the conditions that formed by past transactions or events, and the outcome of which will be confirmed
only by the occurrence or non-occurrence of future events.

Article 3

Other accounting standards shall apply to the Contingencies formed by events such as employee wages and salaries, construction contracts,
income taxes, business combination, leases, original insurance contracts, and re-insurance contracts.

Chapter II Recognition and Measurement

Article 4

The obligation pertinent to a Contingencies shall be recognized as an estimated debts when the following conditions are satisfied
simultaneously:

(1)

That obligation is a current obligation of the enterprise;

(2)

It is likely to cause any economic benefit to flow out of the enterprise as a result of performance of the obligation; and

(3)

The amount of the obligation can be measured in a reliable way.

Article 5

The estimated debts shall be initially measured in accordance with the best estimate of the necessary expenses for the performance
of the current obligation.

If there is a sequent range for the necessary expenses and if all the outcomes within this range are equally likely to occur, the
best estimate shall be determined in accordance with the middle estimate within the range.

In other cases, the best estimate shall be conducted in accordance with the following situations, respectively:

(1)

If the Contingencies concern a single item, it shall be determined in the light of the most likely outcome.

(2)

If the Contingencies concern two or more items, the best estimate should be calculated and determined in accordance with all possible
outcomes and the relevant probabilities.

Article 6

To determine the best estimate, an enterprise shall take into full consideration of the risks, uncertainty, time value of money, and
other factors pertinent to the Contingencies.

If the time value of money is of great significance, the best estimate shall be determined after discounting the relevant future outflow
of cash.

Article 7

When all or some of the expenses necessary for the liquidation of an estimated debts of an enterprise is expected to be compensated
by a third party, the compensation should be separately recognized as an asset only when it is virtually certain that the reimbursement
will be obtained. The amount recognized for the reimbursement should not exceed the book value of the estimated debts.

Article 8

Where an executory contract turns to be a loss contract, the obligation generated from the loss contract which meets the provisions
of Article 4 of these Standards shall be recognized as an estimated debts.

The term “executory contract” refers to a contract, the contractual obligations of which fail to be performed by the relevant contracting
parties, or some of the equal obligations have been performed.

The term “loss contract” refers to a contract whose performance of the contractual obligations will inevitably incur costs in excess
of the expected economic benefits.

Article 9

The future operating losses of an enterprise shall not be recognized as estimated debts.

Article 10

If a restructuring obligations undertaken by an enterprise meets the provisions of Article 4 of these Standards, it shall be recognized
as an estimated debts. The simultaneous existence of the following situations indicates that the enterprise has undertaken the restructuring
obligation:

(1)

Having a detailed and formal restructuring plan, which consists of the businesses concerning restructuring, the main places, the number
of employees to be compensated and the nature of their posts, the expected expenditure for the recombination, the execution time
of the plan; and

(2)

The restructuring plan has been proclaimed to the general public.

The term “restructuring” refers to the act of implementing a plan made and controlled by an enterprise, which may substantially change
the organizational form, business scope or operating manner of the enterprise.

Article 11

The enterprise shall determine the amount of estimated debts in the light of the direct expenditure pertinent to the restructuring.

The direct expenditure exclude the expenses for the pre-post training of the employees who stay on to work, market promotion, new
systems, marketing network, etc.

Article 12

An enterprise shall check the book value of the estimated debts on the balance sheet date. If there is any exact evidence indicating
that the book value cannot really reflect the current best estimate, the enterprise shall adjust the book value in accordance with
the current best estimate.

Article 13

Any enterprise may not recognize any contingent debts or contingent asset.

The term “contingent debts ” refers to a potential obligation caused by past transactions or events and whose existence will be confirmed
only by the occurrence or non-occurrence of uncertain future events; or refers to a current obligation caused by a past transaction
or event but is not recognized because the performance of the obligation is not likely to incur an outflow of economic benefits from
the enterprise or because the amount of the obligation cannot be measured in a reliable way.

The term “contingent asset” refers to a potential asset caused by a past transaction or event and whose existence will be confirmed
only by the occurrence or non-occurrence of uncertain future events.

Chapter III Disclosure

Article 14

An enterprise shall, in its notes, disclose the information pertinent to the Contingencies as follows:

(1)

Estimated debts

(a)

The types and causes of the estimated debts, as well as an explanation for the uncertainty of the outflow of economic benefits;

(b)

The changes at the beginning and the end of the period, and the current changes in the estimated debts;

(c)

The amount of expected compensations pertinent to the estimated debts, and the amount of excepted compensation that has been recognized
in the current period.

(2)

Contingent debts (excluding those contingent liabilities that caused little possibility of any outflow of economic benefits).

(a)

The types and causes of the contingent debts , consisting of the contingent debts arising from discounted commercial acceptance bills
of exchange, pending litigations, pending arbitrations, and guarantees provided for the debts of other enterprises;

(b)

An explanation for the uncertainty of the outflow of the economic benefits;

(c)

An estimate of the expected financial effect of the contingent debts and the possibility of any expenditure. If it is unable to make
an estimate, the reasons shall be explained.

(3)

In general, no enterprise may disclose the contingent assets. However, if a contingent asset will probably give rise to an inflow
of economic benefits to the enterprise, the enterprise shall disclose the cause, the expected financial effect, etc.

Article 15

In the case of a pending litigation or arbitration, if the disclosure of some or all information in accordance with the provisions
as prescribed in Article 14 of these Standards can be expected to produce great unfavorable impact upon the enterprise, the enterprise
shall not need to disclose the information, but shall disclose the nature of the pending litigation or arbitration as well as the
truth and reasons for the failure to disclose the information.



 
The Ministry of Finance
2006-02-15

 






ACCOUNTING STANDARDS FOR ENTERPRISES NO. 28 – CHANGES OF ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES AND ERROR CORRECTION

Ministry of Finance

Accounting Standards for Enterprises No. 28 – Changes of Accounting Policies and Accounting Estimates and Error Correction

Cai Kuai [2006] No. 3

February 15, 2006

Chapter I General Provisions

Article 1

These Standards are formulated in accordance with the Accounting Standards for Enterprises – Basis Standards for the purpose of regulating
the application of enterprise accounting policies, the changes of accounting policies and accounting estimates, the recognition and
measurement of the error correction. in the prior periods, as well as the disclosure of relevant information. .

Article 2

The effects on income tax by the changes of accounting policies and the error correction in the prior periods shall be governed by
the Accounting Standards for Enterprises No. 18 – Income Tax.

Chapter II Accounting Policies

Article 3

With regard to identical or similar transactions or events, an enterprise shall adopt the same accounting policies, unless it is otherwise
prescribed by other accounting standards.

The term “accounting policies” refers to the specific principles, basis and accounting treatment methods adopted by an enterprise
for accounting recognition, measurement and reporting.

Article 4

The accounting policies adopted by an enterprise shall be consistent for each accounting period and the prior and subsequent accounting
periods, and shall not be changed randomly. However, if one of the following conditions is satisfied, accounting policy may be changed:

(1)

The requirement by any law, administrative regulation, or national uniform accounting system changes; or

(2)

More reliable and more relevant accounting information shall be provided through changing the accounting policy. .

Article 5

The following items shall not belong to the changes of accounting policies:

(1)

A new accounting policy is adopted for transactions or events occurred in the current period which are different essentially from
those occurred in the prior periods; and

(2)

A new accounting policy is adopted for transactions or events which occur for the first time or are unimportant.

Article 6

Where an enterprise changes an accounting policy according to the requirement of any law, administrative regulation or the national
uniform accounting system, it shall implement it pursuant to the relevant accounting provisions of the state.

If a change in accounting policy can provide more reliable and more relevant accounting information, the retrospective adjustment
method shall be adopted for handling. The amount of cumulative effect by the change in accounting policy shall be adjusted and presented
as the retained earnings at the beginning of the earliest prior period, and the beginning balance of other relevant items as well
as to other comparative data disclosed in the prior period presented shall be adjusted along with, unless the cumulative effect of
a change in accounting policy is not feasible essentially.

The retrospective adjustment method refers to a method whereby, for a change in accounting policy in respect of particular transactions
or events, the changed accounting policy is adopted as if it had been in use from the day when such transactions or events first
occurred, and the relevant items in the financial statements are adjusted accordingly.

The cumulative effect of a change in accounting policy refers to the difference between the adjusted beginning balance of retained
gain of the earliest prior period presented if the adjusted accounting policy had been applied retrospectively for all prior periods
and the present amount of the retained earnings.

Article 7

If it is impracticable to determine the effect of a change in accounting policy for the prior period presented, the new accounting
policy shall be applied from the beginning of the earliest period for which retrospective application is practicable.

If, at the beginning of the current period, it is impracticable to determine the cumulative effect of the change in accounting policy
for all prior periods, the prospective application method shall be adopted.

The term “prospective application method” refers to a method whereby for a change in accounting policy, the new accounting policy
is applied to the transactions or events occurring on the date of change and in subsequent periods; or refers to a method whereby,
for a change in accounting estimate, the effects of the change of the accounting estimate are recognized during the current period
of the change of accounting estimate and in future periods.

Chapter III Changes in Accounting Estimates

Article 8

An enterprise may need to revise its accounting estimates due to a change in the basis for estimates, or due to the obtainment of
new information, accumulation of more experiences as well as the subsequent development and changes. The basis for the changes in
accounting estimates shall be genuine and reliable.

A change in accounting estimate refers to an adjustment to the book value of an asset or liability or to the amount of expense of
an asset during a certain period, resulting from the changes in the current situation of the asset or liability and the expected
economic benefits and obligations.

Article 9

The prospective application method shall be adopted by an enterprise for treating the changes in accounting estimates.

If a change in accounting estimate affects only the current period of the change, the effect of the change shall be recognized in
the period of the change. If any change in an accounting estimate affects both the period of the current change and future periods,
the effects of the change shall be recognized in the period of the change and in future periods.

Article 10

Where it is difficult for an enterprise to determine a change as one in accounting policy or as one in an accounting estimate, it
shall treat it as a change in an accounting estimate.

Chapter IV Corrections of Prior Period Errors

Article 11

Prior period errors refer to the failure to use or misuse of the following two kinds of information and result in the omissions from
or mis-presentation in financial statements for the prior periods :

(1)

The reliable information that was available and could reasonably be expected to be obtained and taken into account when preparing
the financial statements for the prior periods;

(2)

The reliable information that was available when the financial reports of prior periods are authorized for issue;

Generally prior period errors include calculation mistakes, mistakes in applying accounting policies, oversights or misinterpretations
of facts, consequences of fraud, inventory overage, fixed asset overage, etc.

Article 12

An enterprise shall adopt the retrospective restatement method to correct any important errors of prior period, however, unless it
is impractical to recognize the amount of cumulative effects of the prior period error.

The term “retrospective restatement method” refers to a method whereby, when a prior period error is discovered, the relevant items
of the financial statements are corrected as if the prior period error had never occurred.

Article 13

If it is impracticable to recognize the effect of a prior period error, the enterprise may begin to adjust the beginning balance of
the retained earnings of the earliest prior period for which the retrospective restatement is practical, and in the meanwhile, adjust
the beginning balances of other relevant items in the financial statements, or may adopt the prospective application method.

Article 14

An enterprise shall, in the financial statements of the current period where it discovers any important prior period error, adjust
the comparative data of the prior period.

Chapter V Disclosure

Article 15

An enterprise shall, in its notes, disclose the following information related to the changes in accounting polices:

(1)

The character, contents and reasons for the changes of accounting policies;

(2)

The names of the affected items and the adjusted amounts in the financial statements for the current period and all the prior periods
presented; and

(3)

If it is unable to make retrospective adjustments, it shall state the facts, reasons, date of beginning of the application of the
new accounting policies as well as the information about the concrete application thereof.

Article 16

An enterprise shall, in its notes, disclose the following information related to the changes in accounting estimates:

(1)

The contents of and reasons for the changes in accounting estimates;

(2)

The effects amount in the current period and future periods by changes in accounting estimates; and

(3)

If it is unable to recognize the effect amount of a change in the accounting estimate, it shall disclose the facts and reasons.

Article 17

An enterprise shall, in its notes, disclose the following information related to the corrections in prior period errors:

(1)

The nature of the prior period errors;

(2)

The names of the affected items and the corrected amounts in the financial statements for all prior periods presented.

(3)

If it is unable to make a retrospective restatement, it shall state the facts, reasons, time point of beginning the correction of
the prior period error, as well as the information about the concrete correction.

Article 18

In the financial statements of subsequent periods, it is not required to repeatedly disclose any information about the changes of
accounting policies and corrections of prior period errors which have been disclosed in the notes of prior periods.



 
Ministry of Finance
2006-02-15

 






1...8910...83Page 9 of 83

CONSTITUTION ACT, 1982 – page 22

NOTES (1) The enacting clause was repealed by the Statute Law Revision Act, 1893, 56-57 Vict., c. 14 (U.K.). It read as...

CONSTITUTION ACT, 1982 – page 21

CONSTITUTION ACT, 1982 – page 20

CONSTITUTION ACT, 1982 – page 19

CONSTITUTION ACT, 1982 – page 18

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