The local taxation bureau of Guangdong Province:
The Request for Instructions on the Issue Regarding the Collection of Taxes on the Operational Maintenance and Consulting Services of the Information System as Provided by A Foreign-funded Enterprise within the Chinese Territory of your bureau has been received. As far as we know, the Epcos Germany has concluded an Agreement on IT Operation, Maintenance and Consulting Services with its subsidiaries all around the world to provide operation, maintenance and consulting services for its information system as well as the relevant software for its subsidiaries all around the world, including the Epcos (Zhuhai FTZ) Co. Ltd and the Epcos (Zhuhai) Co. Ltd (hereinafter referred to as ¡°Chinese users¡±) in Germany. As to the payment of expenses, the Epcos Germany shall take charge of arranging its technical personnel to provide services within and out of the Chinese territory in a uniform manner, pay for the relevant expenses in advance, and, thereafter, charge service fees from its users as well as collect software expenses therefrom for its advance payment. We hereby reply on the issues regarding the taxation of service fees collected by the Epcos Germany as well as software expenses that are paid in advance by the Epcos Germany as follows:
1. The aforesaid business operations of the Epcos Germany shall be deemed as the provision of support, maintenance and consultation for the normal operation of the established information system of Chinese users, including the relevant software as assigned by the Epcos Germany. The technical services, for which the relevant technical service fees as prescribed in the provisions in force shall be incorporated as royalties to form the basis for the levy (withholding) of income tax, refers to such labor services as instruction, guidance and trainings in the assignment of special techniques. Therefore, as for service incomes as generated by the Epcos Germany from the aforesaid business operations, the relevant taxes shall be levied in light of the different circumstances. For the incomes as generated from the services that are provided out of the Chinese territory, the business tax and enterprise income tax may be exempted. For the incomes as generated from services that are provided within the Chinese territory, the business tax and income tax shall be paid according to the Provisional Regulations of the People¡¯s Republic of China on Business Tax and the Income Tax Law of the People¡¯s Republic of China Foreign-funded Enterprises and Foreign Enterprises as well as the relevant provisions of Articles 3 and 7 of the Tax Agreement between China and Germany.
2.As to the software royalties as provided by an enterprise outside the Chinese territory to Chinese users, which are collected by the Epcos Germany for its advance payment, the business tax and enterprise income tax shall be levied on the basis of the incomes incurred from the transfer of intangible assets and royalties respectively according to Article 7 of the Detailed Rules for the Implementing the Interim Regulation of the People¡¯s Republic of China on Business Taxes and Article 19 of the Iincome Tax Law of the People¡¯s Republic of China for Foreign-funded Enterprises and Foreign Enterprises. For any technical transfer that meets the requirements for exempting taxes from business income as prescribed in the Circular of the Ministry of Finance and the State Administration of Taxation on the Taxation Issues in Implementing the Decision of the State Council of the Central Government on Intensifying Technical Innovation, Developing High Technologies, and Achieving Industrialization (Cai Shui Zi [1999]No. 273 ), the business tax may be exempted according to the provisions of the aforesaid Circular.
3. An enterprise shall define the aforesaid incomes in an accurate and reasonable manner as well as compute and pay the relevant taxes. For any income that has been unreasonably defined or that cannot be defined according to the real situation, the administrative tax authority may decide the reasonable measures for proportional division so as to define the taxable incomes.
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