Department of Public Offering Supervision of China Securities Regulatory Commission, Standards for Examination and Verification of Share Issues Memorandum No.13 - Examination and Verification Standards for Tax Reduction, Exemption and Refund, and for Government Subsidies and Financial Appropriation

Issued: September 4 2002

Main contents: Section One of the Standards states that the issuer's lawyer shall issue a clear opinion regarding the legal basis of such policies as tax reduction, exemption and refund, and government subsidies and financial appropriation enjoyed by the issuer during the reporting period and after the issue and listing of new shares, as well as whether the corresponding policies are legally applicable and the approval procedures have been carried out (Item Three).
Section Two prescribes accounting treatment and the disclosure requirements. Refunded value-added tax should be recognized as subsidized income in the accounting period in which it is received; refunded consumption tax, business tax and other turnover taxes shall offset the "tax and surcharges on the main business" for the period in which such refunds are received, and refunded income tax shall offset the income tax expenses for the period in which such refund is received (Item One). Where a specific use is designated for government appropriations, the funds shall be recognized as long-term account payable, and the corresponding assets formed shall be recognized as fixed assets once the project is completed (Item Two). Item Three states that where tax refunds and government subsidies account for more than 20% of a company's net profit of the same period, the company must disclose the effect on net profit had the subsidies not been received.
Section Three states that the issuer's lawyer shall issue clear opinions on the legality of exemptions from or the suspension of regional or industrial government fees.
Related legislation: State Council, Correction of Locally Formulated "Pay First, Refund Later" Tax Policies Circular, Jan 11 2000, CLP 2000 No.2 p9; Enterprise Accounting System and Accounting Treatment of the Tax Refunds, Etc. of Companies Limited by Shares Official Reply, 2000