1、（The circular is omitted）Measures for Pre-tax Deductions from Income Tax for EnterprisesChapter I General ProvisionsArticle 1 These Measures are hereby formulated in accordance with the Interim Regulations of the Peoples Republic of China on Income Tax for Enterprises （the Regulations） and implement
2、ing rules thereof （the Rules）。Article 2 According to Article 4 of the Regulations， the balance of total annual income to the taxpayer in each tax year less the allowed deductions shall be the taxable income. The allowed deductions mean all necessary and normal costs， expenses， taxes and losses of th
3、e taxpayer in each tax year arising in connection with the acquisition of taxable income.Article 3 The deductions declared by the taxpayer shall be true and legitimate. Truthfulness means the evidence is available that related expenditure has arisen. Legitimacy means conformity with the state tax re
4、gulations. In case of discrepancy between other regulations and the tax regulations， the latter shall prevail.Article 4 Unless otherwise stipulated by the tax laws and regulations， the confirmation of pre-tax deductions shall comply with the following principles：（1） Accrual basis principle： The taxp
5、ayer shall confirm the deductions at the time when the expense accrues rather than at the time of payment.（2） Matching principle： The expenses of the taxpayer shall be declared for deduction in the period when the expense shall be matched or distributed. The deductible expenses that the taxpayer sha
6、ll declare in a certain tax year shall not be deducted earlier or later.（3） Principle of relevance： The expenses that the taxpayer may deduct shall be relevant to the taxable income in nature and at root.（4） Principle of certainty： No matter when the deductible expenses of the taxpayer are paid， the
7、 amount shall be certain.（5） Principle of reasonableness： The computing and distribution methods for the deductible expenses of the taxpayer shall comply with the general operating rules and accounting practices.Article 5 The expenditure of the taxpayer must be strictly divided into operating expend
8、iture and capital expenditure. Capital expenditure shall not be directly deducted in current period， and instead it shall be depreciated， amortized in several periods or recognized in the costs of related investments in accordance with the provisions of tax laws and regulations.Article 6 Except for
9、the provisions of Article 7 of the Regulations， the following expenditures shall not be deducted from the taxable income：（1） Illegal expenditure such as bribe； Fine， penalty and overdue fine paid for violation of laws and administrative regulations； Provision for impairment of inventories， impairmen
10、t of short-term investment and impairment of long-term investment， risk reserve funds （including investment risk reserve fund）， and any other reserves other than those set aside in accordance with state tax laws and regulations； the part in excess of the statutory deduction scope and standard （propo
11、rtion or amount） specified by tax laws and regulations.Article 7 The confirmation of the costs of such assets as inventory， fixed assets， intangible assets and investments of the taxpayer shall comply with the historical cost principle. In case of restructuring of the taxpayer， including merger， spl
12、it-up and capital structure adjustment， if the potential appreciation or losses of related assets have been confirmed and realized in tax payment， the cost of related assets may be determined according to the appraised value.Chapter II Cost and ExpenseArticle 8 Cost means the cost arising from the t
13、axpayers sales of commodities （including products， materials， leftovers， waste products and old and waste materials）， provision of labor services， and transfer of fixed assets and intangible assets （including technology transfer）。Article 9 The taxpayer shall reasonably divide the cost arising from o
14、perating activities into direct cost and indirect cost. Direct cost means the direct materials and direct labor in the operating cost that may be directly stated for related cost computing objective or labor. Indirect cost means the joint cost of services provided by several departments to the same
15、cost objective or the joint cost of the same input that may manufacture and provide two or more products or labor services.Direct cost may be directly included in the operating cost of related cost objective or labor service according to relevant accounting vouchers and records. Indirect cost must b
16、e reasonably allocated to related cost objectives according to the cause and effect between cost objectives and the output of cost objectives.Article 10 The inventories of the taxpayer shall be priced at the actual cost when it acquires them. The actual cost of inventories purchased by the taxpayer
17、includes purchase price， purchase expense and tax. T ax included in the inventory cost means consumption tax， customs duty and resource tax paid for purchase， production or entrusted processing of inventories and the input value-added tax （VAT） that can not be deducted from the output VAT.The cost o
18、f inventory production by the taxpayer includes such indirect expenses as manufacturing expense.Article 11 The taxpayer may adopt the pricing methods， such as individual pricing method， first in， first out method， weighted average method， moving average method， planning cost method， gross profit mar
19、gin method or retail price method， for outgoing inventories. In case of discrepancy between the inventory process used by the taxpayer and the last in， first out method， the taxpayer may also confirm the cost of outgoing inventories by the last in， first out method. If the taxpayer confirms the inve
20、ntory cost or selling cost by planning cost method or the retail price method， it must carry forward the cost difference or the margin between the selling and purchasing prices on merchandise at the time of year-end declaration of tax payment.Article 12 The cost computing methods， indirect cost dist
21、ribution methods， inventory pricing methods of the taxpayer shall not be changed once they are confirmed. If the change is necessary， the taxpayer shall apply to the competent tax authority for approval before the beginning of the next tax year. Or the tax authority shall have the right to make adju
22、stment if the taxable income is affected.Article 13 Expense means the selling expense， administrative expense and financial expense that the taxpayer occurs in each tax year and may be deductible， except for the expenses that have been included in the cost.Article 14 Selling expense means the expend
23、iture arising to the taxpayer for sales of commodities， including advertising expense， transportation expense， loading and unloading expense， packing expense， exhibition expense， insurance premium， sales commission （adjustment of commodity purchase price cost for the import commission able to be dir
24、ectly confirmed）， handling charge for agency sales， operating lease fee， traveling expense of marketing department， salaries and welfare expense.Such commodity purchase expenses as the packing expense and transportation expense arising to the taxpayer engaged in commodity circulation for the purchas
25、ed inventories before being warehoused， insurance premium and loading and unloading expenses arising in course of transportation and storage， reasonable losses in transportation， and selection and clear-up expenses before warehousing may be directly included in the sales expense. If the taxpayer has
26、 included the said commodity purchase expenses in the inventory cost according to the need of accounting， it shall not declare the deductions repeatedly in the name of sales expense.The sales expense of the taxpayer engaged in real estate development also includes the refitting and repair expense， m
27、aintenance expense and heating expense occurring before sales of the development products.If the sales expense of the taxpayer engaged in post and telecommunications has been included in the operating cost， it shall not be included in the sales expense for deduction again.Article 15 Administrative e
28、xpense means the expense arising to the administrative department of the taxpayer for provision of various supporting services for management and organizing of operating activities. Administrative expense shall include the head office （corporate） outlay borne by the taxpayer， research and developmen
29、t expense （technical development fee）， social security contribution， labor protection expense， business entertainment fee， trade union fee， staff education outlay， expenses of the shareholders meeting or board of directors， amortization of start-up expense， amortization of intangible assets （includi
30、ng land use fee and land loss compensation）， mineral resource compensation， bad debt loss， stamp duty， fire fighting expense， pollutant discharge fee， afforestation fee， foreign affairs fee， legal， financial， material processing and accounting affairs costs （consulting fee， legal cost， fee of engage
31、ment of intermediary agencies， trademark registration fee）， and reasonable administrative fees relevant to its for-profit activities paid to the head office （the head office of the same legal entity in the nature of headquarters）。 Unless with approval of the State Administration of Taxation or its authorized tax authorities， the taxpayer shall not recognize the administrative expense paid to its affiliated enterprises.T
