State Administration of Taxation, Issues Relevant to Taxation Treatment for Services Provided by Foreign-invested Companies with an Investment Nature to Their Subsidiaries Circular

Issued: September 28 2002
Effective: January 1 2003

Main contents: The charges and fees for services that a foreign-invested company with an investment nature provides its subsidiaries shall conform to amounts normally charged for arm's length transactions (Item One). The foreign-invested company and its subsidiary shall execute a detailed service contract and income the investment company gains in providing the service shall be reported as taxable income (Item Two). A foreign-invested company with an investment nature cannot claim office expenses, management salaries and other investment costs that it incurs when it invests in its subsidiary as tax deductions for operational expenses or losses (Item Four). When the foreign-invested company executes a contract for the provision of services to itself and the subsidiary by another independent company, costs collected from the subsidiary that were covered by the foreign-invested company shall not be counted as taxable income for business (Item Five). A foreign-invested company with an investment nature shall not collect management costs from its subsidiaries or share management costs in any form (Item Six).
Related legislation: PRC Administration of Tax Collection Law (Revised in April 2001), Apr 28 2001, CLP 2001 No.5 p12 & CLP 1995 No.3 p12; PRC Foreign Investment Enterprise and Foreign Enterprise Income Tax Law, April 9 1991, CLP 1991 No.3 p25 and PRC Business Tax Tentative Regulations (Revised), Nov 10 2008, CLP 2008 No.10 p62