Announcement on Issues Concerning Income Tax on Policy-related Relocation of Enterprises (“Announcement”)
The State Administration of Taxation released Announcement on Mar. 12, 2013, in which it has further clarified the issues, where the relocation agreement of a policy-based enterprise relocation project has been signed prior to the effective date of Announcement of the State Administration of Taxation on Issuing the Administrative Measures of Enterprise Income Tax on Incomes Obtained from Policy-based Relocation (“Announcement No. 40”) released on Aug. 2012, but the relocation liquidation thereof fails to be completed before such date.
The main contents include:
The Announcement clarifies that, where the relocation agreement of a policy-based enterprise relocation project has been signed prior to the effective date of Announcement No. 40, but the relocation liquidation thereof fails to be completed before such date, the assets purchased during the reconstruction or production resumption process of the enterprise may be deducted from the relocation income as relocation expenses. However, the taxable basis for assets purchased by the above-mentioned enterprise shall not include the relocation compensation, and for relocation agreements of policy-based enterprise relocation projects signed after Announcement No. 40, they shall be carried out according to Announcement No. 40.
In addition, for assets expropriated during the relocation process which adopt the asset substitution method, the taxable cost of the asset received from the substitution shall be the net value of the asset expropriated plus all taxes and charges incurred.
Last but not least, Announcement is retroactively effective from Oct. 1, 2012, which means if the relevant enterprises executed in accordance with Announcement No. 40 after Oct. 1, 2012, they can negotiate with the taxation authorities in accordance with Announcement.