April 24 2012

In accordance with the Law of the People's Republic of China on Enterprise Income Tax (hereafter referred to as the "Enterprise Income Tax Law") and its implementing regulations (hereafter referred to as the "Implementing Regulations"), announcement on several tax disposal issues with respect to enterprise income tax is hereby announced as follows:

Article 1 Pre-tax deduction related to expenses incurred by the employment of seasonal and temporary employees
The expenses incurred by enterprises for the employment of the seasonal, temporary, interns, retired and dispatched employees shall be treated as payroll expenses and welfare expenses respectively and such expenses shall be deducted before the taxation in accordance with the Law of the People's Republic of China on Enterprise Income Tax. Those treated as payroll expenses are allowed to be calculated as part of the total salary of the enterprise and can be referenced when calculating the deduction of other expenses.

Article 2 Pre-tax deduction related to expenses incurred by corporate financing
The reasonable expenses incurred by the enterprise through bond issuance, borrowing, deposit from the insured and other financing activities shall be treated as the cost of assets provided such expenses are eligible for capitalization; shall be treated as financial cost for those which are not eligible for capitalization and which can be deducted when calculating the enterprise income tax.

Article 3 Pre-tax deduction related to operating cost of enterprises which are engaged in agency services
Enterprises which provide agency services and whose major income gained from handling fees and commissions (such as securities, future, insurance agency, etc.) are eligible to deduct their actual operating costs (including handling fees and commissions) when calculating the enterprise income tax.

Article 4 Pre-tax deduction related to handling fees and commissions of telecommunication enterprises
Handling fees and commissions paid by telecommunication enterprises to agencies or brokers in the course of client exploration and business development (such as sales of internet card, telephone card, etc, through consignment), the amount of which actual does not exceed 5% of the total annual income of the current year can be deducted when calculating the taxable income.

Article 5 Pre-tax Tax deduction related to entertainment expenses and other expenses incurred during the pre-operation period
During the pre-operation period, entertainment expenses incurred by enterprises for pre-operation activities, 60% of which can be treated as pre-operation expenses and be deducted in accordance with the relevant rules; for those expenses incurred for advertising and promotions can also be treated as pre-operation expenses for deduction pursuant to the relevant rules.

Article 6 Tax disposal issues related to expenses which were eligible to be deducted but were not deducted in previous years
In accordance with the relevant provisions of Law of the People's Republic of China on the Administration of Tax Collection, for those expenses which were eligible to be deducted while were not deducted either in full or in part in the previous years, such expenses can be deducted after the enterprise files a special application and explanation with the competent tax authorities. The period of retroactive deduction shall not exceed 5 years before the current year.
The overpaid enterprise income tax due to the abovementioned reason can be set off against the tax payable amount in the current year when the retroactive deduction is conducted. If the tax payable amount in the current year is not enough to set off the overpaid tax the remaining amount can be deduced in the following years or be claimed as tax refund.
Where a loss-making enterprise confirms that deduction was not made in the previous years or a profit-making enterprise turns to loss-making after conducting retroactive deduction of previous expenses, the amount of loss in the year when the expense was not deducted shall be adjusted first and shall be then subject to the principle of making up losses to calculate the overpaid enterprise income tax and be processed pursuant to the preceding paragraph.

Article 7 Issues related to administration on non-taxable income
For non-taxable income of enterprises, it shall be treated in accordance with Circular of the Ministry of Finance and the State Administration of Taxation on Issues concerning Handling of Enterprise Income Tax on Special-Purpose Fiscal Capital (Cai Shui `2011` No. 70) (hereafter referred to as the "Circular") otherwise, non-taxable income shall be included in taxable income for enterprise income tax purpose.

Article 8 Issues related to reconciliation between pre-tax deduction rules and the actual enterprise account treatment for expense deduction
In accordance with Article 21 of the Enterprise Income Tax Law, for expenses confirmed by enterprises pursuant to accounting standards, should those expenses fall within the scope and satisfy the standards as required by the Enterprise Income Tax Law and the relevant rules, those expenses shall be deducted in the calculation of taxable income.

Article 9 Effectiveness of this Announcement
The Announcement shall be applied to the disposal of enterprise income tax starting from the year of 2011 and afterward.

It is hereby announced.