Haworth & Lexon Law Newsletter
No.7 2009 (Total:No.92) August.15th, 2009
Edited by Haworth & Lexon
“Haworth & Lexon Law Newsletter ” is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, E-commerce, International trade etc. with necessary comment. All the comments do not mean the legal opinion of our firm and the firm does not have any legal liability for such comment. Should you have any interest in any topics or any questions please feel free to contact the firm. You will be expected to have satisfactory response from the professional attorney of our firm.
Latest Laws and Regulations:
Provisions on the Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions.
Regulation on the Implementation of the Food Safety Law of the People’s Republic of China.
Guiding Opinions of the Supreme People’s Court on Several Issues Concerned in the Trial of Cases involving Civil and Commercial Contractual Disputes under Current Situation.
Notice of the Supreme People’s Court on Printing and Distributing the Guidance on Doing a Better Job in the Trial of Real Estate Dispute in the Current Situation.
Circular on Releasing the Protocol and the Memorandum of Understanding on the Arrangement between the Mainland China and the Macao Special Administration Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion.
Interim Measures on the Administration of Fixed Assets Loan.
Notice of the China Banking Regulatory Commission Guidelines on Issuing the Project Financing Business.
Reply on Issues Concerning the Applicable Catalogue to the Enterprise Income Tax Preferential Policies in the Western Development.
Circular on Issues Relevant to Taxation Policies with Regards to Supporting Development of Animation Industry.
Latest Laws and Regulations
Provisions on the Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions
The Provisions on the Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions (hereinafter “the Opinions”) is promulgated by the State Administration on Foreign Exchange (“SAFE”) on July 13, 2009, and shall come into force as of August 1, 2009.
Overseas direct investment refers to the acts committed by domestic institutions, as approved by competent authorities on overseas direct investment, to establish or obtain such interests as the ownership, controlling right or operation and management rights in existing enterprises or projects outside the territory of China.
The Provisions provide that domestic institutions may undertake the overseas direct investment by using the foreign exchanges owned by them, or the domestic foreign exchange loans that conform to relevant provisions, or using RMB to buy foreign exchange or property or intangible property or other foreign exchange property that are approved by SAFE. The domestic institutions may reserve the profits from overseas direct investment in overseas countries or regions and use them on their overseas direct investment.
The SAFE implements foreign exchange registration and filing system on the overseas direct investment by domestic institutions and the property and relevant interest so acquired, and abandons previous system examining the source of foreign exchange capitals of overseas investment. Any domestic institution that intends to take overseas investment may directly apply to competent authorities of overseas direct investment and may, if approved, undertake foreign exchange registration for such overseas direct investment by using the relevant application materials, and thereafter go to the appointed foreign exchange banks to handle repatriation formalities for the overseas direct investment capitals by using the approval documents and foreign exchange registration certificate of overseas direct investment issued by competent authorities of overseas direct investment.
Where there are relevant modifications by overseas institutions or the stock rights of overseas enterprises holing by domestic institutions have been cancelled for such reasons as transfer of stock, bankruptcy, dissolution, liquidation, expiration of operation term and the like, the domestic institution shall, within 60 days since the occurrence of such events or since obtaining the proving documents from competent authorities of overseas direct investment, handle the relevant formalities to local foreign exchange authorities with such materials.
The domestic institutions may apply to remit preliminary expenses to overseas countries or regions, which, however, shall not exceed 15% of the total overseas direct investment applied by such domestic institution to the competent authorities of overseas direct investment.
Regulation on the Implementation of the Food Safety Law of the People’s Republic of China
The Regulation on the Implementation of the Food Safety Law of the People’s Republic of China (hereinafter “the Regulation”) is promulgated by the State Council on July 20, 2009, and shall come into force as of promulgation.
The Regulation has provided the liabilities of food producer and operator from the following aspects: (1) the enterprises shall, after obtaining the food production license according to the Food Safety Law, undertake industry and commerce registration. The valid term of food production license, food circulation license and food service license shall be 3 years; (2) the safety management liabilities of food production enterprises shall be implemented. It is provided that the enterprises shall establish and implement the food safety management system, including the check and acceptance of raw materials, safety management during the process of production, management of equipment and etc.; it shall make and implement controlling requirements regarding the key links of raw materials and production, inspection, transportation and delivery; where the controlling requirements are violated during the process of production, it shall investigate and find out the reasons and take remedying measures immediately; and shall record the actual safety management circumstances of the production process, which shall be reserved for a period not less than two years; (3) the sales record system shall be established by food wholesale enterprises. Food wholesale enterprises shall record the name, quantity of the food for wholesale, and the name and contact of buyer according to the facts, or reserve the sales instrument bearing such information. The record or instrument shall be reserved for a period not less than two years; (4) the safety management of food service providers shall be established. Food service provider shall make and implement controlling requirements for the purchase of raw materials, so as to make sure that all the raw materials so purchased conform to the food safety standard; where it is found that the food or raw materials to be processed have been deteriorated, they shall not be processed or used. The Regulation still requests that food service providers shall periodically clean and maintain the food process and freezing equipments.
As to the export and import of food, the Regulation has made the following provisions: the importer of importing food shall report to the Entry-Exit Inspection and Quarantine Bureau at the place of the Customs Administration for inspection with the necessary documents such as contract, invoice, packing list, bill of lading and the relevant approval documents. Any import of food shall be subject to the inspection of Entry-Exit Inspection and Quarantine Bureau. The overseas food production enterprises that export food to China shall undertake relevant registration formalities, which is valid for 4 years. The additives in the importing food shall contain labels and introductions in Chinese.
Guiding Opinions of the Supreme People’s Court on Several Issues Concerned in the Trial of Cases involving Civil and Commercial Contractual Disputes under Current Situation
The Guiding Opinions on Several Issues Concerned in the Trial of Cases involving Civil and Commercial Contractual Disputes under Current Situation (hereinafter “the Guiding Opinions”) is promulgated on July 7, 2009 by the Supreme People’s Court.
First, the Guiding Opinions request to apply the principle of change of situation carefully. The people’s court shall (1) command the conditions to apply the the principle of change of situation according to the law, and examine the assertion of “unpredictable” claimed by the parties; (2) reasonably distinguish the change of situation with commercial risks; and (3) still puts particular emphasis on protecting the non-breaching party when mastering the value orientation. During the process of the litigation, people’s court shall actively guide the parties the make re-negotiation and re-sign the contract; where the re-negotiation fails, it shall try hard to solve the issues by mediation.
Second, the Guiding Opinions provide that, where the liquidated damage stipulated by the parties in the contract is too higher than the loss and damage so caused or there are provisions of high punitive liquidated damage, the people’s court shall, in accordance with the provisions and spirit of the Paragraph 2 of Article 114 of the Contract Law and the Article 29 of the Interpretation of the Supreme People’s Court on Several Issues concerning the Application of the Contract Law of the People’s Republic of China (II) and taking into consideration the actual situation of the case, make the decisions on the ground of the actual loss and damage so caused after measuring various factors. The liquidated damage is mainly aimed to compensate the loss, with the supportive function of penalty. If the breaching party defends on the ground that the contract has not been formed, or is not effective, or is void or there is no breach of contract but fails claims to adjust the liquidated damage, the people’s court may explain and confirm if the parties need to claim that the liquidated damage is too high. As to the burden of proof, it is provided that the breaching party shall be responsible to prove that the liquidated damage is too high, and on the other hand, the non-braching party shall prove that the liquidated damage is reasonable.
The Guiding Opinions has divided the types of loss of future benefits. It is provided that the people’s court shall adopt several provisions comprehensively when calculating and recognizing the loss iof future benefits, and deducting the unpredictable loss of the breaching party, the loss of the non-breaching party that is unreasonably extended, the benefits so obtained by the non-breaching party, the loss caused by non-breaching party’s negligence, and the necessary trading costs from the total amout of future benefits claimed by the non-breaching party.
As to agency by estoppel, it is provided that the party to the contract that asserts the agency by estoppel shall bear the burden of proof. It shall not only prove the existence of agency such as the contract, seal, stamp and signature and other objective formats, but also prove that it is fair and has no negligence to believe that the other person has the right of agency.
At the same time, the Guiding Opinions request to apply the compulsory provisions adequately. In the event of violation of compulsory provisions on efficiency, the people’s court shall hold shall the contract be void; in the event of violation of compulsory provisions on management, the people’s court shall recognize the efficiency upon actual circumstances. Where the compulsory provisons are aimed to regulate the act of the contract, the people’s court shall hold that the contract be void; where the complusory provisions are regulating the qualifications concerning the “entry into the market” rather than the type of the act of the contract, or regulating the performance activities of some kinds of contract rather than the act of the contract, the people’s court shall be careful on recognizing the efficiency of such contracts.
As to the rule of counterargument right for security, it is provided that if a party has fully performed the obligation of delivery while the payment term as specified in the contract has not been mature, in case such a party requests the payment party to pay the funds that are not due, if there are exact evidences expressly or impliedly proving that the payment party is not able to or refuses to make the payment, the people’s court may decide that the payment term has been mature or speed up the term of expiration according to the Contract Law and the relevant provisions, unless otherwise the payment party is able to provide suitable securities.
Notice of the Supreme People’s Court on Printing and Distributing the Guidance on Doing a Better Job in the Trial of Real Estate Dispute in the Current Situation
The Supreme People’s Court printed and distributed, on July 9, 2009, the Guidance on Doing a Better Job in the Trial of Real Estate Dispute in the Current Situation, mainly providing on the following aspects:
Protecting the state-owned land use right assignment market according to the laws, and trying its best to maintain the validity of the contract on the transfer of land use right;
Protecting the state-owned land use right transfer market according to the laws, and knowing the difference between the validity of real right and that of contract well;
Strengthening the enforcement of the Bidding Law, correctly knowing the distinctions between the “black/white contract”, and lawfully protecting the substantial contents of the bid winning contract;
Properly handling series disputes of delaying the project payment by the owner and delaying the payment to the labor sub-contractor by the contractor because of the financial difficulties of the owner, and mediation shall be enhanced;
Properly handling the misconduct such as illegal assignment of the contract for a construction project, illegal subletting of such contract, the contracting of construction projects in parts, or conclusion of a contract on undertaking a construction project by an ineligible actual construction undertaker in the name of an eligible construction undertaking enterprise, to ensure the quality of the construction project;
Properly handling the property sales advertisement dispute, deposit dispute in the purchasing agreement, property quality dispute and property square measure dispute, and imposing sanction against malicious breach of contract according to the Interpretation of the Supreme People’s Court on the Relevant Issues concerning the Application of Law for Trying Cases on Dispute over Contract for the Sale of Commodity Houses and thus protecting the rights of the property purchaser. If the property developer can not deliver the properties due to fund deficiency, the court shall mediate between the parties. If mediation fails, the liability for breach of contract shall be handled fairly. If the property purchaser asks for termination of the contract, the contract shall not be terminated if the conditions for termination are not met;
Properly handling the property leasing contract dispute due to rental in arrears. When dealing with the case of a small factory’s lease of plant or warehouse for business purpose, if the lessee temporarily delays paying the rental for shortage of money, but the factory is in normal business operation, then the court shall procure the contract be performed continuously.
Circular on Releasing the Protocol and the Memorandum of Understanding on the Arrangement between the Mainland China and the Macao Special Administration Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion
The State Administration of Taxation promulgated, on July 24, 2009, the Circular on Releasing the Protocol and the Memorandum of Understanding on the Arrangement between the Mainland China and the Macao Special Administration Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion, which will be effective subject to the completion of legal procedures of both parties.
The Protocol mainly revises the Arrangement between the Mainland China and the Macao Special Administration Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion (hereinafter, Arrangement) executed on December 27, 2003, and the Memorandum of Understanding clarifies the disputed issues in the Protocol and Arrangement. For example, concerning the permanent establishments and business profit, Arrangement shall apply if the projects have been started before the enforcement of the Protocol and the Protocol shall not apply; concerning the dividends, interests and loyalties, if they are obtained on the accrual basis before the enforcement of the Protocol, the Arrangement shall apply and the tax rate provided in the Protocol shall not apply.
Interim Measures on the Administration of Fixed Assets Loan
The China Banking Regulatory Commission promulgated the Interim Measures on the Administration of Fixed Assets Loan (hereinafter, Measures) on July 23, 2009, which shall be effective after three (3) months from the date of promulgation.
The Measures are divided into eight chapters and have 43 articles, mainly providing on the acceptance and investigation of fixed assets loan, risk evaluation and approval, contract conclusion, loan granting and payment, and follow-up management.
Fixed assets loan shall refer to the loans in home and foreign currencies, which the loaners grant to enterprises (public institutions) with the legal person status and to other organizations allowed to be borrowers under the provisions of the state and which the borrowers utilize as fixed assets investment.
According to the Measures, there are many conditions for the loaners to accept the fixed assets loans. For example, if the borrower is a newly established project legal person, its controlling shareholder shall have good credit standing and have no bad record; if the state specifies requirements concerning the investor’s qualifications and business qualifications for the investment project, such requirements shall be met; the project conforms to the relevant policies regarding the industry, land, environmental protection, etc. and the lawful management procedures for the fixed asset investment project have been fulfilled under relevant provisions; the relevant provisions of the state on the system of capital for investment projects are satisfied; and so on.
Concerning the loan granting and payment, the Measures request the loaners to check before granting the loan whether the borrowers fulfill the conditions for drawing money, manage and control the payment of loan according to the contract, and supervise the use of loan. A loaner shall manage and control the payment of loan fund in the manner of payment by the loaner upon authorization or in the manner of payment by the borrower itself. A single loan fund payment exceeding 5% of the total investment for the project or 5 million Yuan shall be made by the loaner upon authorization.
About the follow-up management, the Measures request the loaner to regularly check and analyze the information about the fulfillment of the contract by the borrower and project promoters, the construction and operation of the projects, the change of the macro-economy and market fluctuations, changes of the loan guarantees, etc. and establish a system of loan quality monitoring system and a loan risk pre-warning system.
Notice of the China Banking Regulatory Commission Guidelines on Issuing the Project Financing Business
The China Banking Regulatory Commission issued the Guidelines on the Project Financing Business on July 18, 2009, and the Guidelines shall come into force three months after the date of issuance.
According to these Guidelines, the “project financing” refers to a loan which meets the following descriptions: (1) the loan is generally used for building a project of (a set of) production equipment, an infrastructure project, a real estate project or any other project or for refinancing for a project which is being built or has been built; (2) usually, the borrower is an enterprise or a public institution with corporate status which is established for building, operating the project or raising funds for the project, or an existing enterprise or public institution with corporate status which builds or operates the project or raises funds for the project; (3) the primary source of repayment is the sales income, subsidy income or other income from the project, and usually it is the only source of repayment.
In order to enhance the risk control and management for project financing business, these Guidelines have regulated the following requirements:
the loaner shall, when doing project financing, have the ability to identify and manage the risks of projects, be equipped with professionals necessary for operating the business and set up a good operational flow and a good risk management system; the loaner shall, when doing project financing, sufficiently identify and evaluate the risks of projects in the construction period and the operation period; the loaner shall ask the borrower, or ask the parties concerned through the borrower, to reduce the risks in the construction period to the most extent by concluding a general contract, purchasing commercial insurance, preparing the completion guarantee money, providing security for the completion of work or giving a letter of guarantee for fulfilling the loan contract; before granting loan funds, the loaner shall make sure that the project capital has been paid in full amount proportionate to the total loan to be granted, and shall be used in support of the loan funds; the loaner and the borrower shall agree on a special account for the income of the project, enter all income of the project into the account and make foreign payments according to the agreed terms and modes.
Reply on Issues Concerning the Applicable Catalogue to the Enterprise Income Tax Preferential Policies in the Western Development
On July 27, 2009, the State Taxation Administration of China issued the reply to the “Request of the State Taxation Administration of Gansu Province for Instructions on Relevant Taxation Issues concerning the Catalogue of Industries for Guiding Foreign Investment”. The main contents of this Reply include:
the “Notice on the Change of the Applicable Catalogue for the Tax Preferential Policies in Western Development” jointly issued by the Ministry of Finance and the State Taxation Administration shall continue to be applied to the domestic enterprises in the catalogue of encouraged industries, which enjoy the enterprise income tax preferential policies in the western development.
for the foreign-invested enterprises in the catalogue of encouraged industries, which enjoy the enterprise income tax preferential policies in the western development, the transition between the different catalogues shall be dealt with as follows:
the “Catalogue of Industries for Guiding Foreign Investment (revised in 2007)” shall be applied to these enterprises from Jan.1, 2008, and since Jan.1, 2009, the “the Catalogue of Priority Industries for Foreign Investment in the Central-Western Regions (revised in 2008)” shall be applied.
the enterprises which have been approved to enjoy the enterprise income tax preferential policies, except those in the restricted or prohibited industries according to the “Catalogue of Industries for Guiding Foreign Investment (revised in 2007)”, shall continue to enjoy such polices till the end of the term; and for those enterprises in the restricted or prohibited industries, the enterprise income tax preferential policies in western development will not be applicable since the year when the new catalogue come into force.
Those enterprises in the encouraged industries according to the definition of the new catalogue (but not in the encouraged industries as defined by the original catalogue), since the year when the new catalogue come into force, shall be entitled to enjoy the preferential policies in the rest preferential period as calculated in accordance with the relevant enterprise income tax preferential policies in the western development.
Circular on Issues Relevant to Taxation Policies with Regards to Supporting Development of Animation Industry
The “Circular on Issues Relevant to Taxation Policies with Regards to Supporting Development of Animation Industry” (hereinafter referred to as the “Circular”) was issued on Jul.17, 2009 by the State Taxation Administration, which shall come into force on Jan.1, 2009.
According to the Circular, before Dec.31, 2010, with respect to the self-developed and produced animation software sold by animation enterprises (ordinary value-added tax payer), after the VAT has been collected at a 17% rate, the policy of “refund upon collection” shall be applied to the actual VAT load that exceeds 3%. And no value-added tax will be levied on export of animation software.
For their self-developed and produced animation products as confirmed by the relevant authority, animation enterprises may apply for the relevant enterprise income tax preferential policies issued by the government to encourage the development of the software industry.
With respect to the services provided by animation enterprises for development of animation products, such as cartoon script compilation, image design, background design, animation design, and storyboard design, the rate of business tax will be temporally reduced to 3% before Dec.31, 2010.
For the import goods necessary to the direct self-developed and produced animation products as confirmed by the relevant authority, animation enterprises can enjoy the preferential policies on exemption of import tariff and import value-added tax.