Offices of SAT of provinces, autonomous regions, municipalities directly under the central government and separately planning cities,

For the purpose of enhancing administration on immediate refund of VAT levied for some sectors, closing tax loopholes and avoiding illegal practices concerning tax issues including false issuance of VAT special invoices and tax fraud, the State Administration of Taxation has decided to taken the administrative measures of refund of VAT upon assessment for the practice of immediate refund of VAT levied. The relevant issues are herein notified as follows:

I. After accepting the application for tax refund by the taxpayer that enjoys the preference policy of immediate refund of VAT levied, the competent tax department shall make a tax assessment of the change rate of its sales and its VAT bearing ratio.

1) Formula for calculating the rate of change of sales 

(1)    Change rate of sales at this period on month-on-month basis = (sales of goods and services at this period enjoying immediate refund of VAT levied – sales of goods and services at previous period enjoying immediate refund of VAT levied) / sales of goods and services at previous period enjoying immediate refund of VAT levied * 100%.

(2)    Change rate of accumulative sales at this period on month-on-month basis = (accumulative sales of goods and services at this period enjoying immediate refund of VAT levied – accumulative sales of goods and services at previous period enjoying immediate refund of VAT levied) / accumulative sales of goods and services at previous period enjoying immediate refund of VAT levied * 100%.

(3)    Change rate of sales at this period on year-on-year basis = (sales of goods and services at this period enjoying immediate refund of VAT levied – sales of goods and services at the same period last year enjoying immediate refund of VAT levied) / sales of goods and services at the same period last year enjoying immediate refund of VAT levied * 100%.

(4)    Change rate of accumulative sales at this period on year-on-year basis = (accumulative sales of goods and services at this period enjoying immediate refund of VAT levied – accumulative sales of goods and services at the same period last year enjoying immediate refund of VAT levied) / accumulative sales of goods and services at the same period last year enjoying immediate refund of VAT levied * 100%.

2) Formula for calculating the VAT bearing ratio

VAT bearing ratio = tax payable at this period for the goods and services enjoying immediate refund of VAT levied / sales of goods and services at this period enjoying immediate refund of VAT levied * 100%.

3) The specific standards concerning abnormal change rate of sales and VAT bearing ratio shall be determined by the tax agency at the provincial level and reported to the SAT (Goods and Services Taxation Department) for filing.

2. Where the change rate of sales or the VAT bearing ratio is normal, the competent tax department shall handle the procedures for refund of tax.

3. Where the change rate of sales or the VAT bearing ratio is abnormal, the competent tax department shall stop the examination and approval for tax refund and find out the reasons for the abnormality by means of material analysis, talk with the enterprise concerned and onsite investigation within 20 working days.

(1)    After assessment, for those whose abnormality can be explained, the competent tax department may handle the procedures for refund of tax.

(2)    After assessment, for those whose abnormality without due reasons, the competent tax department shall not handle the procedures for refund of tax and shall hand the case over to the tax inspection department.

4. The competent tax department shall enhance efforts on daily monitoring and subsequent administration, and pay attention to collection and command of information concerning production and operation of taxpayers. Except the above-mentioned contents for assessment, the said department shall do good job on tax assessment by virtue of other assessment approaches. The said department shall proactively take advantage of the effective mechanism of tax assessment to close tax loopholes and ensure the fully implementation of the preference policies of immediate refund of VAT levied.

5. The Circular shall enter into force on Sep. 1, 2009.