Announcement of the State Administration of Taxation on Issuing the ＂Measures for the Administration of Enterprise Income Tax on Abandonment and Disposal Charges of Offshore Oil and Gas Production Facilities＂

Announcement of the State Administration of Taxation on Issuing the ＂Measures for the Administration of Enterprise Income Tax on Abandonment and Disposal Charges of Offshore Oil and Gas Production Facilities＂ Announcement of the State Administration of Taxation (No.22 [2011]) Announcement on Issuing the ＂Measures for the Administration of Enterprise Income Tax on Abandonment and Disposal Charges of Offshore Oil and Gas Production Facilities＂ The "Measures for the Administration of Enterprise Income Tax on Abandonment and Disposal Charges of Offshore Oil and Gas Production Facilities" is hereby issued and shall come into effect in 30 days after the date of promulgation. The Announcement is hereby given. Annex: Statement of Abandonment and Disposal Charges of Offshore Oil and Gas Production Facilities (omitted) March 22, 2011 Measures for the Administration of Enterprise Income Tax on Abandonment and Disposal Charges of Offshore Oil and Gas Production Facilities Chapter I - General Rules Article 1 These Measures are formulated for the purpose of strengthening and standardizing the administration of enterprise income tax on decommissioning and abandonment fees of offshore oil and gas production facilities, in accordance with relevant provisions of the " Law of the People's Republic of China Concerning the Administration of Tax Collection ", the " Implementation Regulations of the Enterprise Income Tax Law of the People's Republic of China " and the " Notice of National Development and Reform Commission, National Energy Administration, Ministry of Finance, State Administration of Taxation and State Oceanic Administration on Printing and Distributing the 'Tentative Provisions on the Administration of Abandonment and Disposal of Offshore Oil and Gas Production Facilities' " (Fa Gai Neng Yuan [2010] No.1305). Article 2 The term "abandonment and disposal charges" refers to various special expenditures incurred by enterprises that are engaged in exploitation of offshore oil and gas resources in China for assuming the responsibilities and obligations of managing the abandonment and disposal of oil and gas production facilities for the purpose of recovery of ecological environment, such as the abandonment, dismantle and removal, and re-filling of wells and related facilities, and its preparation, etc. The charges mainly include the costs related to pre-stage studies of abandonment and disposal, preparations for quitting production, abandonment and disposal of engineering facilities and oil wells. Article 3 The term "offshore oil & gas production facilities" (hereinafter referred to as facilities) as mentioned in these Measures include offshore oil wells, gas wells, water wells, fixed platforms, artificial islands, single point moor, floating fuel production & reserve devices, submarine cables, pipelines, subsea production systems, shore terminal, and other water and underwater oil & gas production-related auxiliary facilities. Article 4 The term "enterprises" in these Measures refers to Chinese enterprises and foreign enterprises participating in the exploitation of offshore oil and gas resources. Article 5 The term "operators" in these Measures refers to entities that are responsible for marine oil (gas) field operations, including the enterprises which are engaged in the exploitation of offshore oil resources or various investment enterprises. Chapter II - Records for the Abandonment and Disposal Plan Article 6 Before withdrawal of the abandonment and disposal charges, enterprises shall provide the preparatory plan worked out by operators for abandonment and disposal of offshore gas (oil) field facilities to the in-charge taxation authorities for the records. A preparatory plan shall include the amount of estimated abandonment and disposal charges, methods of raising the abandonment and disposal charges, and methods of the abandonment and disposal, etc. Article 7 Whenever the preparatory plan for abandonment and disposal of facilities is modified, the enterprise shall report to the in-charge taxation authority within 30 days after the amendment for the records. Article 8 Before an enterprise carries out operations in an offshore gas (oil) field, the plan for implementation of abandonment and disposal of facilities worked out according to the requirements of relevant competent departments of the state shall be reported to in-charge taxation authorities for the records. Chapter III - Withdrawal and Pre-tax Deduction of Abandonment and Disposal Charges Article 9 The abandonment and disposal charges of an offshore oil (gas) field shall be withdrawn monthly in accordance with the methods (production method or straight-line method) as regulated in the preparatory plan for abandonment and disposal of facilities. Where many enterprises jointly develop an oil (gas) field, the same method shall be adopted for the purpose of the withdrawal of abandonment and disposal charges. Once the withdrawal method of abandonment and disposal charges is determined, no change shall be made unless the preparatory plan for abandonment and disposal of facilities is subject to modification. Article 10 For an offshore oil (gas) field that enters into commercial production after the implementation of these Measures, the abandonment and disposal charges shall be withdrawn starting from the next month after the entering into commercial production. For an offshore oil (gas) field that has entered into commercial production before the implementation of these Measures, the abandonment and disposal charges shall be withdrawn starting from the next month after the preparatory plan for abandonment and disposal of facilities, which is supplementarily worked out by the operator, is submitted to the in-charge taxation authority for the records. Where the operator modifies the preparatory plan for abandonment and disposal, the abandonment and disposal charges after modifications shall be withdrawn starting from the next month after the preparatory plan for abandonment and disposal is re-filed to the in-charge taxation authority for the records. Article 11 The following formula shall be observed by those who adopt the straight line method for withdrawing the abandonment and disposal charges on a monthly basis: Amount of the abandonment and disposal charges withdrawn for the current month = (total amount of the abandonment and disposal charges in the preparatory plan - accumulated withdrawn abandonment and disposal charges) ÷ contract production period (month) - profits and losses of earmarked account of abandonment and disposal charges for the current month The term "profits and losses of earmarked account of abandonment and disposal charges for the current month" in the present and the following formulas includes earmarked account interests, exchange gains or losses, etc. The exchange gains or losses thereof refer to the exchange gains or losses arising from the balances of the earmarked account of abandonment and disposal charges in the case of the situation that the abandonment and disposal charges are withdrawn and stored in currencies other than RMB, when converting into RMB according to the current RMB exchange rate of the latest month. For an offshore oil (gas) field that has entered into commercial production before the implementation of these Measures, the contract production period (month) is the remaining months for starting the calculation and withdrawal of abandonment and disposal charges. Article 12 The following formula shall be observed by those who adopt the production method for calculating and withdrawing the abandonment and disposal charges: Amount of the abandonment and disposal charges withdrawn for the current month = (total amount of the abandonment and disposal charges in the preparatory plan - accumulated withdrawn abandonment and disposal charges) × the proportion of amount withdrawn for the current month - profits and losses of earmarked account of abandonment and disposal charges for the current month The proportion of amount withdrawn for the current month = the actual output of oil (gas) for the current month ÷ (the actual output of oil (gas) for the current month + developable reserves proved by end of period) The term "developable reserves proved by end of period" refers to recoverable reserves corresponding to the proved developable reserves under the capacity of existing facilities. Article 13 Operators shall, after the end of the tax year, adjust the specific conditions of abandonment and disposal charges withdrawn in the current year. Enterprises shall determine the amount of audited annual abandonment and disposal charges according to the adjustments by operators at the annual final settlement. Article 14 Where the amendments of the preparatory plan for abandonment and disposal of facilities lead to the changes of methods and the withdrawn amount of abandonment and disposal charges, since the next month the plan is revised, the balance between the total amount of abandonment and disposal charges in the new plan and the accumulated withdrawn amount shall be continuously withdrawn according to methods determined in the new plan. Article 15 Oil (gas) field enterprises or all cooperative enterprises shall assume or, in proportion to the investment, undertake the responsibilities and obligations of abandonment and disposal of facilities, the abandonment and disposal charges withdrawn in the light of these Measures shall be deemed as special funds in aspects of environmental protection, ecological restoration, etc., and allowed to be deducted when calculating the enterprise's annual taxable income. Article 16 When, one company to the cooperative oil (gas) field contract decides to give up production and transfer the whole ownership of the oil (gas) field to the other company before the contracted production period expires, or when one enterprise decides to continue the operation when the contracted production period of a cooperative oil (gas) field expires, compensations for the withdrawn of abandonment and disposal charges obtained by the sign-off party or quitting party shall be deemed as income and included in the taxable income for the current year for the purpose of tax payment. For the paying enterprise the said compensations can be deemed as abandonment and disposal charges for the purpose of one-off deduction in the year of payment. Chapter IV - Use of Abandonment and Disposal Charges Article 17 Abandonment and disposal charges arising from the abandonment and disposal of offshore oil (gas) facilities by operators shall be separately collected for the purpose of calculation, and deducted from the withdrawn of the abandonment and disposal charges according to these Measures. Article 18 After abandonment and disposal operations of offshore oil (gas) facilities are completed, if there leaves balances after the withdrawn of the abandonment and disposal expenses, operators shall correspondingly increase the taxable income for the current year of the enterprise to which the abandonment and disposal expenses belong. Article 19 After abandonment and disposal operations of offshore oil (gas) facilities are completed, the portions of actual abandonment and disposal expenses exceeding the withdrawn amount shall be deemed as costs of the enterprise for the current year, and deducted when calculating the enterprise's taxable income. Chapter V - Administration of Abandonment and Disposal Charges Article 20 Profits and losses arising from funds in the special account of abandonment and disposal charges shall be included in the amount of abandonment and disposal charges, and the withdrawal amount of current abandonment and disposal charges shall be adjusted. Article 21 Withdrawal and settlement of abandonment and disposal charges shall use RMB as the unified monetary unit. Exchange gains or losses incurred are directly used for increasing or reducing abandonment and disposal charges. Article 22 An enterprise shall, when filing the final settlement of enterprise income tax for the current year, submit the Statement of Abandonment and Disposal Charges of Offshore Oil and Gas Production Facilities as an annex. Article 23 After abandonment and disposal operations of offshore oil (gas) facilities are completed, during the tax settlement, enterprises shall provide statements on the withdrawal, use and the share of each investor of the abandonment and disposal expenses respectively. Chapter VI - Supplementary Rules Article 24 Abandonment and disposal charges withheld by enterprises according to these Measures shall not be deducted before enterprise income tax once their usage is changed. If in such case the deductions have been made the taxable income shall be increased in the year when the usage is changed, and be dealt with according to relevant provisions of the " Law of the People's Republic of China Concerning the Administration of Tax Collection ".......