Jul 2010, Issue 11
Further clarification or more confusion on transitional corporate income tax treatments for new / high technology enterprises?
In late December 2007, the State Council issued an important tax circular, Guofa [2007] No.39 ("Circular 39"), to address the transitional treatments of tax incentives available to old enterprises established prior to the promulgation of the new Corporate Income Tax ("CIT") Law ("Old Enterprises"). There is one important principle explicitly stipulated in Circular 39 that an Old Enterprise has to make an irrevocable choice between the transitional treatments and the preferential policies under new CIT regime, to prohibit overlapping of tax incentives. Nevertheless, during the past two years, confusion kept coming when some Old Enterprises, particularly new / high technology enterprises ("NHTEs"), were required to choose between the available transitional treatments and preferential treatments under the new CIT regime, as there were different interpretation adopted by different local-level tax bureaux on this principle of Circular 39.
The State Administration of Taxation has issued several circulars to make clarification. The latest one is a tax circular, Guoshuihan [2010] No.157 ("Circular 157") promulgated in April 2010, attempting to clarify the transitional CIT treatments for NHTEs and some other important scenarios. However, while this Circular 157 is providing further clarification, it also helps add more confusion.
In this issue of News Flash, we would like to share the salient points of this new circular as well as our observations.
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