Circular of the Ministry of Finance and the State Administration of Taxation on the Release of the tentative Measures on the Administration of Value-added Tax on Oil and Gas Field Enterprises

Circular of the Ministry of Finance and the State Administration of Taxation on the Release of the tentative Measures on the Administration of Value-added Tax on Oil and Gas Field Enterprises

Cai Shui Zi [2000] No.32

March 13, 2000

The financial departments (bureaus) and the national and the local taxation bureaus of various provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state planning, Xinjiang Production and Construction Corps:

The State Council has approved the restructuring and reforming scheme of the China National Petroleum Corporation and the adjustment scheme of relevant taxation policies, we hereby print and distribute the Tentative Measures on the Administration of Value-added Tax on Oil and Gas Field Enterprises to you for your compliance and implementation.

Appendix: the tentative Measures on the Administration of Value-added Tax on Oil and Gas Field Enterprises

Article1 Pursuant to the restructuring and reforming scheme of China National Petroleum Corporation and adjustment scheme of relevant taxation policies approved by the State Council, with a view to facilitating the restructuring and reforming of petroleum and natural gas production enterprises and improving value-added tax collection management of petroleum and natural gas production enterprises, we hereby enact these Measures.

Article 2 These Measures shall apply to enterprises engaged in petroleum and natural gas production in PRC, which include the oil and gas field companies (branches and subsidiaries) separated as a result of the restructuring and reforming of China National Petroleum Corporation (hereinafter referred to as "CNPC") and China Petrochemical Corporation(hereinafter referred to as "Sinopec Group" ) and the existing companies, as well as other oil-gas production enterprises (hereinafter referred to as "Oil and Gas Field Enterprises" ), excluding those oil and gas field enterprises subject to 5% value-added tax upon the approval by the State Council.
The surviving companies refer to the existing enterprises after the restructuring and reforming of CNPC and Sinopec Group.

Article 3 Definition of value-added tax payers
1. All oil and gas field enterprises engaged in the production and sale of such goods as crude oil and natural gas or the provision of such labor services as processing, and making repairs and supply replacements are value-added tax payers.
2. The oil and gas field branches or subsidiaries controlled by the CNPC and the Sinopec Group are value-added tax payers.
3. The enterprises providing labor services in relation to the production of crude oil and gas affiliated to the CNPC and Sinopec Group are value-added tax payers.

Article 4 The labor services provided by oil and gas enterprises for the production of crude oil and gas are subject to value-added tax.
Productive labor services refer to the labor services provided by oil and gas field enterprises rendered in the chain of production from the geological survey, prospecting and exploitating to the sale of crude oil and gas. The detailed productive labor services are defined in Appendix 1 hereto.

Article 5 The value-added tax rate for productive labor services provided by tax payers is 17%.

Article 6 The goods used for production and the taxable labor services provided between non-independent-accounting organizations affiliated to various oil and gas field enterprises shall be not subject to value-added tax. The taxable labor services refer to the processing, and making repairs and supply replacements, and productive labor services(the taxable labor services referred to hereunder has the same meaning)

Article 7 The taxes at purchases for the following items shall not be deducted from the taxes at sales by oil and gas field enterprises:
1. purchase of fixed assets.
2. goods or taxable labor services purchased for non-taxable items. Non-taxable items refer to the provision of non-taxable services, transfer of intangible assets, sale of real properties and construction of buildings or structures not for production purposes.
3. goods or taxable labor services for tax exempted items.
4. goods or taxable services purchased for collective welfares or personal consumption, including those purchased by affiliated schools, hospitals, restaurants, guesthouses, kindergartens, sanitaria, cultural and entertainment organizations and so on.
5. Abnormal losses of goods purchased.
6. Abnormal losses of purchased goods and taxable labor services at the cost of the products and finished products.
Fixed assets purchased by oil and gas field enterprises refer to the assets listed on the Catalog of Fixed Assets Purchased by Oil and Gas Field Enterprises (Appendix II).

Article 8 The value-added tax taxable on the productive labor services by other oil and gas field enterprises accepted by an oil and gas field enterprise for the production of crude oil and gas may be deducted from the taxable amount indicated in the specific invoices for vale-added tax issued by the services providers.

Article 9 For oil & gas field enterprises which operate across borders of provinces, autonomous regions, municipalities directly under the central government or cities under separate state planning, the local tax authorities where such enterprises reside shall summarize all the value-added taxes payable based on the calculations by the enterprises, and then apportion the aggregate VAT payable among the oil and gas fields on the basis of production volume of each oil and gas field (oil well), and each oil and gas field shall pay its share awarded to tax authorities at its place of operation. Tax authorities at the place of the enterprises shall regularly dispatch related data to the tax authorities at the place of each oil and gas field concerned. For oil and gas field enterprises within any one of provinces, autonomous regions, municipalities directly under the central government or cities under separate state planning, the calculation and payment of value-added tax shall be defined by the state tax bureaus of various province, autonomous regions, municipalities directly under the central government or cities specifically designated in the state planning unit.

Article 10 An Oil and gas field enterprise, when providing productive labor services to another oil and gas field enterprise in the different province, autonomous region, or municipality directly under the central government, shall file or register for taxation with the tax authorities at the place of services, and shall apply for general value-added tax payer qualification recognition. Upon recognition by the tax authorities at the place of services, the enterprises shall calculate payable value-added tax as general value-added tax payers.

Article 11 The tax payment obligation of an oil and field enterprise for the productive labor services rendered for the production of crude oil and gas starts on the day when it receives the payment or the invoice of the payment for the labor services.
For constructions enterprises, the tax payment obligation is ascertained in the following ways:
1. where settlement is to be made in total at the completion of the whole project, the day when the contractor and the employer settle the accounts.
2. for projects of which payment are made in the way of "prepayment during each month, settlement at end of each month or final settlement at completion", the day at the end of each month when settlement with the employer for the completed part is made.
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