每日一练F6（CHN）答案回复可见

Investment, accountant, prepared

1 (a) Company H is a manufacturing joint venture enterprise which was established and started operations on
1 January 2008.
The statement of enterprise income tax (EIT) payable prepared by the accountant of Company H for the year
2008 is as follows:
Note: RMB
Turnover 300,000,000
Cost of goods sold (200,000,000)
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Gross profit 100,000,000
Management expenses (1) (35,000,000)
Investment income (2) 475,000
Other loss: writing off of fixed assets (3) (300,000)
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Taxable profits 65,175,000
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Tax rate 25%
Tax payable 16,293,750
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Notes:
(1) The following amounts are included within the management and sales expenses:
RMB
– Salaries and bonuses paid to staff (including RMB 200,000 paid to
qualified disabled employees) 10,000,000
– Entertaining expense 1,500,000
– Advertising expense 3,000,000
– Donation to a qualified charity 250,000
– Research and development expense 800,000
– Staff and workers benefits 500,000
– Staff and workers education expenses 100,000
– Sponsorship of a car racing event 100,000
(2) The investment income comprises:
RMB
– Overseas dividend (net of foreign income tax at 15%) 85,000
– Gain on disposal of listed B-shares 270,000
– Interest income on national debenture (gross) 20,000
– Gain on disposal of national debenture (Net) 100,000
(3) The original cost of the fixed assets was RMB 1,000,000 and the accumulated depreciation was
RMB 700,000, while the accumulated tax allowances claimed were RMB 800,000.
(4) During the year the foreign investor of Company H donated machinery with a fair value of RMB 100,000
to the company. The accountant recorded this donation as a credit to the capital reserve account.
Required:
(i) Briefly explain the enterprise income tax (EIT) treatment of each of the items referred to in notes (1) to
(4) above. (15 marks)
(ii) Calculate the correct amount of enterprise income tax (EIT) payable by Company H for the year 2008.
(8 marks)

(b) Company J is considering paying a share of the administrative costs incurred by its Chinese investor.
Required:
Outline the general tax rule regarding the sharing of costs and state the conditions that Company J must
satisfy in order to be eligible for a tax deduction for the shared costs. (4 marks)
(c) In the case of each of the following manufacturing wholly foreign owned enterprises, briefly explain the
transitional arrangements under the new enterprise income tax (EIT) laws and rules effective from 1 January
2008.
(i) Company L, which was incorporated in Shenzhen about 10 years ago. (3 marks)
(ii) Company M, which was incorporated in Shenzhen in 2006 and has started but not yet finished its tax
holiday period (i.e. two years exempt and half rate for the following three years). (2 marks)
(iii) Company N, which was incorporated in Shenzhen in 2006 and has incurred losses ever since then.
(3 marks)
(35 marks)

1 (a) Company H
(i) (1) In addition to the actual expense, a further deduction of 100% of the amount paid to disabled
employees expenses is allowable. 1·0
(2) Subject to the maximum amount of 0·5% of the sales/business income of the year, 60% of the
entertaining expense is deductible. 1·0
(3) Qualifiying advertising and promotion expenses are deductible up to 15% of the sales/business
income of the year. Any excess amount can be carried forward to the following years. 1·0
(4) Charitable donations to the approved organisations are deductible up to 12% of the annual
accounting profits. 1·0
(5) In addition to the actual expense, a further deduction of 50% of the research and development
expense is allowable. 1·0
(6) Staff and worker benefits are deductible up to 14% of total salaries and wages. 1·0
(7) Staff education expenses are deductible up to 2·5% of total salaries and wages. 1·0
(8) Sponsorship of non-business activities is non-deductible. 1·0
(9) The gross amount of the overseas dividend 85,000/(1 – 15%) = RMB 100,000 is taxable
and the difference between the gross and net should be added back in the calculation of taxable
income. Since the 25% PRC rate is greater than the foreign tax rate of 15%, the foreign tax 1·0
credit can be set off in full against the income tax liablity. 1·0
(10) A gain on the disposal of listed shares is taxable. 1·0
(11) Interest income from national debentures is exempt. 1·0
(12) A gain on the disposal of a national debenture is taxable. 1·0
(13) Only the tax written down value is allowable on the write off of a fixed asset. 1·0
(14) Donation income is taxable at its fair value. 1·0
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15
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(ii) Enterprise income tax computation for the year 2008:
RMB RMB
Taxable profit before adjustment 65,175,000
Add:
(2) Non-allowable entertainment (40% of RMB 1,500,000) 600,000 0·5
(3) No adjustment 0 0·5
(4) No adjustment 0 0·5
(6) No adjustment 0 0·5
(7) No adjustment 0 0·5
(8) Non-allowable sponsorship 100,000 0·5
(9) Tax withheld from overseas dividend (gross up) 15,000 0·5
(10) No adjustment 0 0·5
(12) No adjustment 0 0·5
(13) Tax written down value over limit (300,000 – 200,000) 100,000 0·5
(14) Donation income 100,000 915,000 0·5
––––––––
Less:
(1) Additional deduction for disabled employees 200,000 0·5
(5) Additional deduction for research expense 400,000 0·5
(11) National debenture interest is exempt 20,000 (620,000) 0·5
–––––––– –––––––––––
Adjusted taxable amount 65,470,000
–––––––––––
Income tax at 25% 16,367,500 0·5
Less: foreign tax credit (15,000) 0·5
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Income tax payable 16,352,500
––––––––––– ––––
8·0
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(b) The sharing of administrative costs is generally non-tax deductible. 1·0
However, where a specific benefit is received by the payer sharing the costs may be deductible. 1·0
To qualify for the deduction, Company J must have supporting documents from the Chinese investor
certifying the basis of the sharing and the scope of the expenses involved, together with a verification report
issued by a certified public accountant. 2·0
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4·0
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Marks
(c) (i) Company L would have been enjoying a 15% preferential tax rate before the implementation of the
new EIT. In such cases the tax rate will be increased step by step to 25% in the following manner:
2008 –18% /2009 – 20% /2010 – 22% /2011 – 24% /2012 – 25%. 3·0
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(ii) Company M is currently enjoying a tax holiday (two years exempt and following three years half
exempt) therefore, it will continue to enjoy the tax holiday until its expiration. 2·0
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(iii) Company N has not yet started enjoying the tax holiday due to its losses, so the tax holiday period
will be deemed to commence from 1 January 2008. In other words, even if Company N continues
to make losses and does not have a chance to enjoy the tax holiday, Company N will be subject to
the full tax rate of 25% of its taxable profits after offsetting any accumulated losses from the end of the
five year transition period, i.e. from 1 January 2013. 3·0
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35
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