Exercise 1 ——Enterprise Income Tax
I. True or False
（ ） 1、China has abolished all the region-based tax incentives in the 2008 new enterprise
income tax reform.
（ ） 2、According to China’s new enterprise income tax law, enterprises can carry forward the
losses incurred.
（
）3、According to China’s new enterprise income tax law, all the wages and salaries paid by
an enterprise can be deducted from taxable profits.
（
）4、According to China’s new enterprise income tax law, enterprises can deduct all the
interest costs from gross income to get the net taxable income.
（
）5、Foreign investment enterprises established in China will be regarded as China’s
resident enterprise for tax purpose after 2008.
II、Please select the best one from the four choices
1. Chinese resident enterprises will not be liable to the enterprise income tax in China on its
A. controlled foreign subsidiary’s income
B. foreign branch’s income
C. foreign independent agent’s income
D. dividends paid to the domestic corporate shareholders
.
2、According to China’s enterprise income tax law, retained earnings of a company located abroad
can be subject to China’s enterprise income tax if some conditions hold. These conditions do not
include
.
A. The company is substantially owned by China’s resident companies or individuals.
B. The company is subject to lower corporate income tax rate than 12.5%
C. The company does not make reasonable distribution of dividend
D. The company does not operate actively
3、China’s resident company is subject to enterprise income tax on its
.
A. Worldwide income
B. China-source income
C. Foreign-source income
D. Gross income
4、Which of the following items can be deducted from taxable income without limitation when
calculating enterprise income tax?______.
A. interests
B. dividends paid to the shareholders
C. operational leasing expenses
D. donations to primary schools
5、Which of the following items can not enjoy tax incentives according to China’s current
enterprise income tax law?
.
A. high-tech industry
B. agricultural enterprises
C. infrastructure investment
D. foreign investment
6、The following items are exempt from Enterprise Income Tax except
.
A. Treasury bonds interests
B. Earnings of the eligible charity institutions
C. Dividends received from other enterprises
D. Dividends paid to the shareholders
7、China’s new Enterprise Income Tax law includes provisions about the following items
except
.
A. definition of permanent establishment
B. general anti-avoidance rule
C. thin capitalization rule
D. tax incentives for small business
III. Answer the following questions briefly
1. Incorporation may lead to double taxation of income tax. Please explain why many investors
still choose company as the form of business.
2. Please compare the tax liability of foreign branch and foreign subsidiary of China’s resident
enterprises in terms of enterprise income tax.
3. Please give an example of “treaty-shopping” and try to explain the benefits and
risks of “treaty-shopping”.
IV、Calculation
1. Suppose X company is a Chinese resident company. It has two branches in country A and
country B. Please calculate X company’s enterprise income tax payable in China in 2008 based
on your knowledge about China’s enterprise income tax and the information given below:
Before-tax profit
(in 2008)
Enterprise/Corporate
tax rate
X company in China
300 million yuan
25%
Branch in country A
100 million yuan
20%
150 million yuan
30%
Branch in country B
Income
2. Holdco pays tax on its worldwide income at 25% in China. The foreign tax credit system in
China allows withholding taxes as well as “indirect foreign taxes” paid on the underlying
corporate profits from which a foreign-sourced dividend distribution is received be creditable
against domestic taxes.
Holdco is trying to decide whether to set up a Country E factory facility as a branch or a Country E
subsidiary corporation. Country E adopts a territorial income tax system and imposes 15%
income tax on net income arising from sources within Country E. Dividend, interests and other
passive income paid to non-residents of Country E attract 10% withholding tax (reduced under
the treaty to 5% in cases where 10% or more corporate shareholding is held by a China corporate
dividend recipient).
Holdco generates taxable income of RMB 100 million during the year in China. The factory is
expected to generate taxable income equivalent to RMB1, 000 million during the year.
Question: Please compare the tax burden under the two alternatives.