G/SCM/Q2/CHN/129  
 
18 April 2024 
(24-3234) Page: 1/8 
Committee on Subsidies and Countervailing Measures  Original: English  
 
 
SUBSIDIES  
REPLIES TO QUESTIONS POSED BY THE UNITED KINGDOM1 REGARDING  
THE NEW AND FULL NOTIFICATION OF CHINA2 
The following communication, dated and received on 12 April 2024, is being circulated at the request 
of the delegation of China . 
 
_______________  
 
 
General Questions  
We would like to thank China for its reply to the UK 's question 16 on its 2021 notification. 
(G/SCM/N/372/CHN ) In its answer, China stated that "... SOEs have been integrated with 
the market economy and become the main entity independently engaging in market 
competition. SOEs  purchase and sell according to commercial considerations. SOEs are 
subject to the same laws and rules as other enterprises in terms of access to funds, 
bankruptcy and competition legislation and do not enjoy privileges. "3 
Question 1  
Could China please confirm that its State -Owned banks do not constitute any of the 
following under Article 1.1(a)(1) of the Agreement on Subsidies and Countervailing 
Measures:    
a) A public body which provides financial contributions? or  
b) A funding mechanism which receives contributions from the government?  
Reply : 
It is confirmed.  
Specific Questions  
Preferential tax policies in the western regions  
The notification states that imported products contained within the following catalogues 
do not qualify for preferential tax treatment: The Catalogue for Imported Products not 
Subject to T ax Exemption in Domestic Invested Projects; The Catalogue for Imported 
Products not Subject to Tax Exemption in Foreign Invested Projects; and The Catalogue 
for Imported Major Technical Equipment and Products not Subject to Tax Exemption . 
 
1 G/SCM/Q2/CHN/125  
2 G/SCM/N/401/CHN  
3 G/SCM/Q2/CHN/111  G/SCM/Q2/CHN/129  
 
- 2 - 
 
  Question 2  
Could China please provide further information on the criteria used when preparing these 
three  catalogues?  
Question 3  
Could China please clarify whether the lists of products contained within the three 
catalogues are periodically reviewed and updated?  
Preferenti al tax treatment of additional calculation and deduction of research and 
development expenses  
Replies to Questions 2 and 3 : 
1. Regarding the Catalogue for Imported Products not Subject to Tax Exemption in Domestic 
Invested Projects  and the Catalogue for Imported Products not Subject to Tax Exemption in Foreign 
Invested Projects  
 
According to the Notice of the State Council on Adjusting the Tax Policies for Imported Equipment  
(GF [1997] No. 37) and the Announcement of the Ministry of Finance, the General Administration of 
Customs and the State Taxation Administration on Corresponding Adjustments to Some Import Tax 
Preferential Policies  (No. 43 in 2008), domestic investment projects encouraged by the State and 
imported equipment for sel f-use by foreign investment projects are exempt from tariffs, except for 
the goods listed in the Catalogue for Imported Products not Subject to Tax Exemption in Foreign 
Invested Project s and the Catalogue for Imported Products not Subject to Tax Exemption in Domestic 
Invested Projects . 
 
In December 1997, the General Office of the State Council issued the Reply of the General Office of 
the State Council to the National Development and Reform Commission Regarding the 'Catalogue 
for Imported Products not Subje ct to Tax Exemption in Foreign Invested Projects' and the 'Catalogue 
for Imported Products not Subject to Tax Exemption in Domestic Invested Projects'  (GBH [1997] 
No. 68) and published the Catalogue for Imported Products not Subject to Tax Exemption in For eign 
Invested Projects (Trial)  and the Catalogue for Imported Products not Subject to Tax Exemption in 
Domestic Invested Projects (Trial) . The Catalogue for Imported Products not Subject to Tax 
Exemption in Foreign Invested Projects  has been in effect sinc e its issuance in 1997; the Catalogue 
for Imported Products not Subject to Tax Exemption in Foreign Invested Projects (Adjusted in 2012)  
is currently applicable after multiple adjustments.  
 
2. Regarding the Catalogue for Imported Major Technical Equipment and Products not Subject to 
Tax Exemption  
 
Since 2009, in order to promote the development of the equipment manufacturing industry, the 
Ministry of Finance and other departments have launched import tax policies on major technical 
equipment, of which tarif fs and import VAT have been exempted for major technical equipment and 
products necessarily imported by eligible domestic enterprises for production of key components and 
raw materials encouraged by the State.  
 
The above policies have been adjusted through  dynamic catalogue adjustments. Currently, relevant 
catalogues issued by the Notice on Adjusting the Catalogue of Import Tax Policies for Major Technical 
Equipment (GXBLZZ [2021] No. 198) in 2021. For relevant information, please refer to: 
https://www.gov.cn/zhengce/zhengceku/2021 -12/19/content_5661949.htm  
 
Question 4  
Could China please clarify whether the subsidy is available to only Chinese -owned 
enterprises, or whether foreign -invested enterprises operating in China are also able to 
apply?  G/SCM/Q2/CHN/129  
 
- 3 - 
 
  Reply : 
Except for tobacco manufacturing, accommodation and catering, wholesale and retail, real estate, 
leasing and business services, and enterta inment, the enterprises in other industries can enjoy the 
policy on additional deduction of R&D expenses, regardless of whether they are Chinese -owned 
enterprises or foreign -invested enterprises in China.  
Preferential tax policies for enterprises transferr ing technology  
Question 5  
Could China please provide further information on:  
a) The purpose and functioning of the tax incentives for scheme, including how 
"resident enterprises " are defined and whether the "transfer of technology " can 
occur between enterprises of any nationality?  
b) The level of "transfer of technology " which is required for an enterprise to qualify 
for the scheme?  
Reply : 
a) The purpose and functioning of preferential tax policies for enterprises transferring 
technology is to activate R&D innovation activities and stimulate the transformation of 
scientific and technological innovation achievements. "Resident enterprises" refer to 
enterprises established within the territory of China in accordance with Chinese l aw, or 
enterprises established in accordance with the laws of foreign countries (regions) but with 
actual management institutions within the territory of China. The technology transferor is a 
resident enterprise (including Chinese and foreign -invested ente rprises in China) as 
stipulated in the Enterprise Income Tax Law. The technology transfer income obtained by 
the resident enterprise from its affiliated parties who directly or indirectly hold 100% of total 
equity thereof is not eligible for the preferenti al policy of enterprise income tax exemption 
on technology transfer.  
b) The current policy has no restrictions on the amount of technology transfer income eligible 
for preferential treatment. However, different preferential policies are applicable according 
to the amount: generally speaking, the technology transfer income portion less than or equal 
to RMB 5 million is exempt from corporate income tax; the portion higher than RMB 5 million 
is subject to a 50% reduction in corporate income tax.  
Preferential tax treatment for enterprises with comprehensive utilization of resources  
Question 6  
Could China please provide further information on the scheme, including what is meant 
by "comprehensive utilisation of resources " and what sectors and activities can qualify 
for the scheme?  
Reply : 
"Comprehensive utilization of resources" refers to the production of products not restricted or 
prohibited by the State and complying with relevant national and industry standards by the 
enterprises with main raw materials of the resources specified in the Catalogue of Comprehensive 
Use of Resources for Preferential Enterprise Income Tax Treatment. When the above -mentioned 
preferential tax is applied, the proportion of resources listed in the Catalogue to total raw materials 
of the  products shall comply with the technical standards specified in the Catalogue.  
The non -resource comprehensive utilization income obtained by the enterprises from other projects 
simultaneously shall be accounted for separately from the resource comprehensi ve utilization 
income. All enterprises that meet the above conditions can enjoy the preferential tax treatment for 
enterprises with comprehensive utilization of resources.  G/SCM/Q2/CHN/129  
 
- 4 - 
 
  We note that this scheme and China's "Preferential tax treatment for projects for 
environmental protection, water and energy conservation" scheme have similar 
objectives.  
Question 7  
Could China please clarify:  
a) What the differences are between the two schemes?  
b) Whether enterprises can apply for, and receive, preferential tax treatment unde r 
both schemes at the same time?  
Reply : 
There are several main differences between the preferential tax treatment for enterprises with 
comprehensive utilization of resources and the preferential tax treatment for projects for 
environmental protection, wate r and energy conservation:  
(1) The focus and priority of policies are different. Although main purpose of both preferential policies 
is to cultivate and strengthen the energy -saving and environmental protection industry and promote 
resource conservation an d efficient utilization, the former mainly focuses on optimizing the allocation 
and sustainable use of resources, while the latter focuses more on environmental protection and 
energy conservation.  
(2) Preferential contents are different. The former means t hat, when taxable income is calculated, 
90% of the income from producing products meeting national industrial policies is included in the 
total annual income of the enterprise; the latter means that the exemption and halving of corporate 
income tax are imp lemented by stages on the income of enterprises from eligible environmental 
protection, energy conservation and water conservation projects.  
(3) Time duration to enjoy tax preference is different. The former has no time limit and can be 
enjoyed as long as the conditions are satisfied; the latter starts from the tax year in which the first 
production and operation income is obtained from the project, and the enterprise income tax shall 
be exempted from the first year to the third year and halved from the fou rth year to the sixth year.  
Eligible enterprises can simultaneously enjoy both preferential tax treatments.  
Preferential tax treatment for energy -saving and new energy vehicles and vessels  
The notification states that new energy vehicles listed in the "Catalogue of the Models of 
New Energy Vehicles Exempted from Vehicle Purchase Tax " are eligible for preferential 
tax treatment.  
Question 8  
Could China please provide further information on the criteria used when preparing this 
catalogue, including:  
a) Whether foreign vehicle models can qualify for listing within the catalogue?  
b) Whether the list of vehicle models is periodically reviewed and updated?  
Reply : 
Reply to A -B: The Ministry of Industry and Information Technology and the State Taxation 
Administra tion have implemented management by issuing the Catalogue of the Models of New 
Energy Vehicles Exempted from Vehicle Purchase Tax . Foreign vehicle models can be included in the 
Catalog ue according to regulations. The list of vehicle models is periodically reviewed and updated. 
According to preliminary statistics, nearly 100 imported foreign brands, such as Audi, BMW, Porsche, G/SCM/Q2/CHN/129  
 
- 5 - 
 
  Volkswagen, Chrysler, Tesla and Cherokee, had been included in the Catalogue of the Models of New 
Energy Vehicles Exempted from Vehicle Purchase Tax as of the end of 2023.  
 
Question 9  
Could China please provide information on the number of enterprises which received 
preferential tax treatment under the scheme during t he reporting period?  
Reply : 
No relevant statistics are available.  
Preferential tax treatment for the public buses and trolleybuses purchased by urban public 
transportation enterprises  
Question 10  
Could China please provide further information on the eligibility criteria for the scheme, 
including whether preferential tax treatment is also extended to the purchase of foreign -
made public buses and trolleybuses?  
Question 11  
Could China please provide information on the number of buses and trolleybuses tha t were 
purchased by urban public transportation enterprises during the reporting period?  
Replies to Questions 10 and 11 : 
According to the  Announcement of the Ministry of Finance and the State Taxation Administration on 
Specific Policies Related to Vehicle Purchase Tax  (No. 71 of 2019), urban public transportation 
enterprises exempted from vehicle purchase tax for buses and trolleybuses purchased by them refer 
to the enterprises that have been recognized by the transportation department of the people's 
government at or above the county level (inclusive), have obtained the qualification for urban public 
transportation operation in accordance with the law, provide public transportation services to the 
masses and have been included in the Catalogue of Urban Public Transport ation Management 
Departments and Urban Public Transportation Enterprises . The buses and trolleybuses are vehicles 
designed and manufactured for transportation of passengers, operated according to prescribed 
routes, stations and ticket prices and used for r endering public transportation services, including 
buses, trolleybuses and tramways. According to the Announcement of the Ministry of Transport of 
the State Taxation Administration on Exemption of Vehicle Purchase Tax for Public Buses Purchased 
by Urban Pu blic Transport Enterprises  (No. 22 of 2019), the transportation authorities at or above 
the county level (inclusive) where urban public transport enterprises are located shall issue the Public 
Bus Certification Form  for public buses, trolleybuses and tramw ays purchased by urban public 
transport enterprises meeting the standards of the Type Dividing and Class Rating of Public Buses  
in accordance with relevant provisions of the Announcement (No. 71 of 2019) of the Ministry of 
Finance and the State Taxation Ad ministration. According to the Public Bus Certification Form  and 
other materials required for declaration of vehicle purchase tax, the tax authority shall handle the 
vehicle purchase tax exemption procedures for public buses purchased by urban public 
transportation enterprises listed in the Catalogue . No relevant statistics on the number of buses and 
trolleybuses are available.  G/SCM/Q2/CHN/129  
 
- 6 - 
 
  Preferential tax policies for farming, forest, animal husbandry and fishery product 
projects  
Question 12  
Could China please provide  further information on the eligibility criteria for farming, 
forestry, animal husbandry and fishery projects to be able to qualify for preferential tax 
treatment under the scheme?  
Reply : 
Unless otherwise specified, the enterprises enjoying the preferential tax policies for farming, forest, 
animal husbandry and fishery product projects shall follow the standards specified in the National 
Economic Industry Classification . In addition, the en terprises engaged in agricultural, forestry, 
animal husbandry and fishery projects, which fall into the scope of restricted or eliminated projects 
in the  Catalogue for Guiding Industry Restructuring , must not enjoy such preferential policies.  
 
Preferential  VAT for large passenger aircraft and new regional aircraft  
The notification states that only "taxpayers " are eligible for preferential tax treatment 
under the scheme.  
Question 13  
Could China please clarify whether foreign enterprises operating in China can also qualify 
for the scheme?  
The notification states that the objective of the scheme is to "encourage R&D in aircraft 
manufacturing industry ", but also states that "taxpayers " that are already producing and 
selling aircraft (regional and civil j et aircraft) are also eligible for support ".  
Question 14  
Could China please provide further information on what R&D activities are eligible for 
preferential tax treatment under the scheme?  
Question 15  
Could China please provide information on the number o f "taxpayers " which received 
preferential tax treatment under the scheme during the reporting period, including the 
number of beneficiaries that were undertaking only R&D activities?  
Replies to Questions 13, 14 and 15 : 
In August 2023, China continuously optimized the preferential VAT for large passenger aircraft and 
new regional aircraft. The Announcement of the Ministry of Finance and the State Taxation 
Administration on Tax Policies for Civil Aviation Engines and Civil  Aircraft  (No. 27 of 2023, hereinafter 
referred to as the Announcement No. 27 ) clarifies specific provisions for enjoying VAT preferential 
policies. Specific contents of R&D projects consulted by UK can be found in the Announcement No. 
27. Please refer to:  https://www.gov.cn/zhengce/zhengceku/202309/content_6902897.htm   
 
For the "taxpayer" mentioned in the Announcement No. 27 , eligible VAT taxpayers, whether foreign -
invested enterprises or Chinese enterprises, can enjoy the above -mentioned VAT preferential policies 
in accordance with current policies and regulations.  
 
At the moment, no specific data is currently available regarding the numbe r of taxpayers enjoying 
this policy or the number of beneficiaries engaged in R&D activities.  G/SCM/Q2/CHN/129  
 
- 7 - 
 
  Policies on house property tax and urban land use tax for enterprises designing and 
manufacturing large passenger aircraft and its engine  
The notification states that only "taxpayers" are eligible for preferential tax treatment 
under the scheme.  
Question 16  
Could China please clarify whether foreign enterprises operating in China can also qualify 
for the scheme?  
The notification states that  "Taxpayers and their wholly -owned subsidiaries engaged in 
development projects of large passenger aircraft " are eligible for preferential tax 
treatment under the scheme.  
Question 17  
Could China please clarify whether both the "Taxpayers " and their wholly -owned 
subsidiaries can apply for, and receive, preferential tax treatment under the scheme at 
the same time?  
We note that this scheme and China's "Preferential VAT for large passenger aircraft and 
new regional aircraft " share the same policy objective.  
Question 18  
Could China please clarify whether "Taxpayers " are able to apply for, and receive, 
preferential tax treatment under both schemes at the same time?  
Replies to Questions 1 6, 17 and 18: 
According to the Announcement of the Ministry of Finance and the State Taxation Administration on 
Taxation Policies for Civil Aviation Engines, New Regional Airplanes and Large Passenger Airplanes  
(No. 88 of 2019), the research, production and office properties and land used by the taxpayers and 
their wholly -owned s ubsidiaries for large civil aircraft engine and medium and high -power civil 
turboprop engine development projects are exempted from house property tax and urban land use 
tax; the research, production and office properties and land used by the taxpayers and  their wholly -
owned subsidiaries for large -scale aircraft development projects are also exempted from house 
property tax and urban land use tax.  
 
For both Chinese and foreign -invested enterprises, eligible taxpayers can enjoy the aforementioned 
policies on  house property tax and urban land use tax. Eligible taxpayers and their wholly -owned 
subsidiaries can also apply for and enjoy this tax preferential treatment. All eligible taxpayers can 
apply for and enjoy preferential treatment for VAT, house property t ax and urban land use tax 
simultaneously.  
 
Preferential treatment policy for some passenger vehicles  
Question 19  
Could China please provide further information on the eligibility criteria for the scheme, 
including whether preferential tax treatment is also extended to the purchase of foreign -
made vehicles?  
Reply : 
 
According to the Announcement of the Ministry of Finance and the State Taxation Administration on 
Reducing the Purchase Tax on Some Passenger Vehicles  (No. 20, 2022) 
(https://www.gov.cn/zhengce/zhengceku/2022 -05/31/content_5693233.htm ), the vehicle 
purchase tax shall be reduced by half for 2.0L and below displacement passenger cars purchased 
between June 1, 2022 and December 31, 2022, with a single vehicle price (excluding VAT) not G/SCM/Q2/CHN/129  
 
- 8 - 
 
  exceeding RMB 300,000. This policy does not set requir ements or restrictions on the manufacturing 
origin of the vehicles.  
 
Special fund for the development of clean energy  
Question 20  
Could China please provide further information on the eligibility criteria for the scheme, 
including whether foreign enterpris es operating in China can also apply?  
Reply : 
Please refer to the Interim Measures for the Management of Special Funds for Clean Energy 
Development (http://jjs.mof.gov.cn/zhengcefagui/202006/t20200630_3540905.htm ). All eligible 
enterprises can apply for it according to relevant procedures.  
__________