Some insiders say that these requirements were removed because they would be difficult for the State Council to pass, and would require heavy revising, so instead they have been left for the State Tax Bureau to deal with after the rest of the Details have been set.

Wen Zhe, a tax consultant at Baker & McKenzie law firm, echoes these predictions. He thinks that the Details will not include benchmarks based on research and development costs, sales revenues, and minimum proportions of specialized staff.? Instead, he says, they will appear in the subsequent documents.

Fourth suspense:?tax evasion and transfer pricing

“Many foreign-funded enterprises are very concerned about China's transfer pricing policy changes,” Wen Zhe said, “The Details will have a great impact on them.” [Editor's note: you can learn more about transfer pricing here]

Sources say that the Details have one particular clause dealing with price-transferring. It defines the “Business Activity without Reasonable Purposes” which is not clear in the enterprise income tax law. “Business Activity without Reasonable Purposes” refers to business activities aiming to reduce, delay, or evade the tax.

They add that the 47th article clearly states that where the enterprise does business activities without reasonable purposes to reduce the payable income, the tax authority has the right to reasonably make adjustments.

That is to say, if the enterprise takes advantage of corporate restructuring or re-investment, or other arrangements to evade and delay the tax, regardless whether such acts are legal, the tax authorities have the right to adjust the enterprise’s income tax.

It is also said that the Details also stipulates that besides collecting the payable income tax, tax authorities should impose additional interests on the enterprises.
The sources say the State Administration of Taxation will formulate a special document supplementing transfer pricing regulation by the end of this year or the next.
Enterprises are likely to be required to keep relevant business records dealing with transfer pricing, and deliver those records to the tax authority by the end of every year. In addition, the tax authority is likely at any time to conduct an investigation of those records.

Fifth suspense:? pre-tax deduction

The Law sets a unified standard for both foreign and domestic firms' tax deductions, but does not state what the exact ratios are. Sources say that the Details clarify this-- for example, 60 percent of expenses related to business activities can count towards a pre-tax deduction, but this cannot exceed 0.5 percent of annual sales revenue. They add that labor union expenditures that are less than 2 percent of staffs’ total salaries can also be deducted.

Regarding non-profit donations, sources say that the Details stipulate that donations less than 12 percent of the enterprise’s annual total profits can also be deducted.