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Please click on the links below to view more:   The First Case of Consolidated Foreign Enterprise Income Tax Filing for A Foreign Bank's Branches    In a recent tax case ruling, the State Administration of Taxation ("SAT") affirmed its approval for a foreign bank's application for consolidated foreign enterprise income tax ("FEIT") filing for all of its existing branches around China.  The current PRC tax regime technically allows foreign enterprises with branches in multiple cities to report FEIT on a consolidated basis under Articles 89 to 92 of the Implementation Rules of FEIT Law.  However, there were very few applications on this subject, in particular, for the banking industry.   Read more...... Expand / Collapse It has long been an administrative practice that branches in different cities of a foreign bank were treated as separate taxpayers and were required to file FEIT returns with respective local state tax bureaux.  A problem may arise when one branch has significant tax loss which cannot be utilized before it lapses.  The recent tax case ruling on consolidated tax filing for multiple branches of a foreign bank offers a window of opportunity to solve this problem.    Foreign banks, which may be interested in taking advantage of the above opportunity, should consider or assess the following impacts as well as uncertainties ahead: The approval for consolidated FEIT filing of branches of foreign bank is granted at the discretion of the SAT having regard to the specific facts of each case and the support of the local tax bureaux involved.   The application should be pre-approved by the in-charge tax bureau of the branch taking up the consolidated FEIT filing responsibility before submission to the SAT for approval.  If the in-charge tax bureau expects a significant decrease or deferral of future tax revenue from the bank as a result of the consolidated FEIT filing, it may not be supportive to the application.   Given the following scenarios, it is unclear that tax loss of a branch subject to a lower tax rate (say, 15%) should be firstly utilized to offset against the profits of another branch with the same tax rate before such loss can be applied to profits subject to higher rates (say, 33%): Profits generated by branches in different cities are subject to different FEIT rates; and Profits generated by the same branch from different businesses (i.e. RMB business vs. forex business) are also subject to different rates.   In any year where tax loss of a branch subject to a lower tax rate (say, 15%) is utilized to offset against profit of another branch subject to a higher rate (say, 33%) under the consolidated FEIT filing, the taxpayer is required to adjust the consolidated FEIT filing in subsequent years when the loss-making branch later generates profits so that such profits will be taxed at the higher rate.  This is a complicated arrangement and careful planning and monitoring would be required.   The ruling has not covered the issue whether the expenses incurred by the China representative offices of the same foreign bank can be included in the consolidated FEIT filing. Notwithstanding, this tax case ruling provides a chance to those foreign banks who are exploring alternatives in using cumulative losses or are suffering various inconsistencies in local practice/interpretation of FEIT treatments.  The SAT's attitude in improving the investment environment for foreign banks should be welcomed.   Close Update on Export Tax Refund    To further regulate export tax refund, the SAT and the Ministry of Commerce jointly issued circular Guo Shui Fa [2006] 24 which took effect from 1 March 2006.    Read more...... Expand / Collapse An export enterprise cannot apply for export tax refund/exemption if any of the following conditions exists: The exporting enterprise provides parties, other than their appointed transportation agent, customs declaration agent or the transportation agent of the importer, with blank export tax refund/exemption documents such as customs declaration forms or export remittance receipt confirmation statement;   The exporting enterprise declares as an exporter for its own goods, or goods of its investee companies in the case of a China Investment Enterprise, where in substance the export is for goods of other enterprise and is performed by other enterprise;   Similarly, being declared as an exporter for its own goods, the exporting enterprise signs both an export agency agreement and a purchase agreement in respect of the same shipment;   The exporting enterprise amends the details on the marine bill of lading after customs clearance such that the details stated in the marine bill of lading differ from those stated in the customs declaration form;   Being declared as an exporter for its own goods, the exporting enterprise does not take risk on the quality of products, timely settlement of foreign exchange or tax refund due to improper export declaration;   Being declared as an exporter for its own goods, the exporting enterprise does not export its own goods but instead exports goods on behalf of others; and   The exporting enterprise involves in any act of violating the laws and regulations on export tax refund. If an export enterprise is discovered to have been engaged in any of the above-mentioned activities, any tax refunded/exempted should be totally recovered and any unsettled tax refund/exemption application will not be processed.  In case of fraudulent claims, additional fine amounting to two to five times of the tax refund/exemption amount will be imposed.  In addition, the enterprise's right to apply for export tax refund/exemption may be suspended for at least six months and legal proceedings may be initiated in criminal cases.   Close

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