China: deduction of advertising and promotion expenses clarifiedJune 25, 2012
The Ministry of Finance and State Administration of Taxation (SAT) jointly issued a Notice on 30 May 2012 (Cai Shui  No. 48) regarding the deduction of advertising and promotion expenses.
The notice applies in the period from 1 January 2011 to 31 December 2015 and is summarized below.
The advertising and promotion expenses relating to manufacturing and sales of cosmetic products and to pharmacy and beverage (non-alcoholic) manufacturing are deductible up to 30% of the sale proceeds of the current year. The excess of 30% can be carried over to the following years for deduction.
The Implementation Rules of Enterprise Income Tax provide for 15% deduction of such expenses for all industries and the Ministry of Finance and SAT issued a notice in 2009 (Cai Shui  No. 72) to increase this general 15% to 30% for the cosmetic, pharmacy and soft drink industries.
However, Cai Shui  No. 72 ceased to apply on 31 December 2010. The notice  No. 48 extends the 30% deduction to 31 December 2015.
An associated enterprise that has concluded a cost-sharing arrangement on advertisement and promotion expenses with another associated enterprise may, within the deduction limit of 30% of the sale proceeds, deduct the expenses in the enterprise itself or allocate a portion or the whole amount to another associated enterprise for deduction.
Another associated enterprise need not take into account the amounts allocated in determining its own deduction limit of 30%.
Further, the notice provides that the advertisement and promotion expenses incurred by tobacco industries are excluded from deduction for enterprise income tax purposes.
©copyright IBFD. This article is part of a selection of daily news from the IBFD Tax News Service (TNS) chosen by Ernst & Young professionals. All rights to the content reside with IBFD. Any use requires IBFD’s prior permission in writing. IBFD´s disclaimer applies to any and all of IBFD’s articles and publications.