State Administration of Taxation, Further Strengthening Administration in the Examination and Approval of Pre-tax Deductions of Management Fees Drawn by Head Offices Circular

Issued: January 28 2005
Effective: The Circular shall be implemented as of the time when examining and approving the 2004 pre-tax deductions of management fees drawn by head offices (Section Four).

Main contents: The Circular lists the materials required for the application for pre-tax deduction of management fees drawn by head offices (Section One(2)). Except for the case where the head office and the relevant branches are in the same province, such applications should be approved by the State Administration of Taxation if the management fees drawn amount to Rmb20 million, and by the local provincial taxation authority if the aforesaid amount is less than Rmb20 million (Section Three). The management fees drawn by the head office and deducted before tax should be apportioned by all wholly-owned branches (including branches with small profit, making losses, or enjoying tax exemption or reduction) at the same ratio relevant to their total revenue. All operating and non-operating revenues of the head office, including house rentals, interest income from treasury bonds and deposits, and apportioned returns from external investments (including investments in branches) shall be deducted from the amount of management fees for pre-tax deduction. The Circular also stipulates that wages, bonuses and other expenses paid by the head office on behalf of its branches shall be taken as expenses of the branches and may not be included in the management fees of the head office.
Related legislation: Examination and Approval of Pre-tax Deductions of Management Fees Drawn by Head Offices Procedures, 1996 and Examination and Approval of Pre-tax Deductions of Management Fees Drawn by Head Offices Procedures Supplementary Circular, 1999