On 8 November 2017, the State Administration of Taxation (SAT) issued Announcement  No. 40 (“Announcement 40”). This clarifies which expenses qualify as research and development (R&D) expenses for super deduction purposes (under this eligible R&D expenses are entitled 150% deduction for CIT purposes; 175% for science and technology SMEs). It also addresses practical issues arising from the two 2015-issued R&D super deduction circulars Cai Shui  No. 119 (“Circular 119”) and SAT Announcement  No. 97 (“Announcement 97”). Announcement 40 applies to corporate income tax (CIT) filings from (and including) 2017.
Super deductions are now clarified as available for:
Clarifications are also made in relation to depreciation/amortization on tangible or intangible fixed assets which are used for R&D activities. Announcement 40 clarifies that, where such assets are depreciated/amortized on an accelerated basis (for tax purposes), the depreciation / amortization expenses can be included in the total expenses for super-deduction purposes. This replaces the Announcement 97 provision that the eligible depreciation expense can be claimed for super deduction purposes if the accounting treatment has been followed for tax purposes (this would limit the amount deductible from a tax perspective). For example, if accelerated tax depreciation is 100, and accounting depreciation is 30, Announcement 97 says only 30 can be taken into the super deduction, but Announcement 40 allows 100.
Furthermore, Announcement 40 also clarifies the treatment of government subsidies, multi-year special income (e.g., from selling scrap, faulty or trial products, etc.) and expenses, and outsourcing of R&D projects for super deduction purposes.
* For more information about the R&D “super deduction” policy, you may access the following KPMG publications:
On 20 November 2017, the Ministry of Finance (MOF) and SAT issued the Draft Resource Tax Law (‘the draft RT law”) to solicit the public comments before 20 November 2017.
On 9 May 2016, MOF, SAT and the Ministry of Water Resources (MWR) had issued three circulars, to comprehensively implement the RT reform across China beginning on 1 July 2016 (see KPMG China Tax Weekly Update (Issue 18, May 2016) for details). The reform aims to expand the scope of collection of the RT, from a volume based to a price based tax and establish a more fair and efficient RT system.
To this end, the government has now decided to place the existing RT on a statutory basis, i.e., RT is currently based on 1993 State Council-issued rules and it will be replaced by statutory law issued by the National People’s Congress. The draft RT law mainly clarifies the following:
On 24 November 2017, Mr. Wang Fukai, deputy director of the SAT Large Enterprise Department (“LED”), shared details of the SAT’s progress with tax risk management for group enterprises listed in the “Thousand Enterprises Initiative” (“TEI”). This took place through an online discussion (webcast) with taxpayers. Mr. Wang highlighted the following:
* For more information about the policies in relation to TEI-covered group enterprises and improvement of tax services for large enterprises, please read KPMG China Tax Weekly Update (Issue 4, February 2016) , (Issue 42, November 2016) and (Issue 14, April 2017).