Finance Departments (Bureaus) of Provinces, Autonomous Regions, Directly-Administered Municipalities, and Cities under Separate Planning; State Administration of Taxation; Local Tax Bureaus; Financial Bureau of the Xinjiang Production and Construction Corps:

According to Article 44 of the Implementation Regulations of the Enterprise Income Tax Law of the People’s Republic of China (Decree No. 512 of the State Council), we hereby notify you of the tax-deduction policy for advertising expenses and business promotion expenses incurred by certain industries as follows:

1. For enterprises engaged in the manufacture of cosmetics, pharmaceuticals, and beverages (excluding alcoholic beverage manufacturing, the same applies hereinafter), advertising expenses and business promotion expenses incurred may be deducted up to 30% of the current year’s sales (operating) revenue; any amount exceeding this limit may be carried forward and deducted in subsequent tax years.

2. For beverage manufacturing enterprises adopting a franchise model, advertising and business promotion expenses incurred by the beverage brand users—up to 30% of the current year’s sales (operating) revenue—may be deducted by the enterprise itself. Alternatively, part or all of these expenses may be pooled and allocated to the beverage brand holder or manager, which may then deduct such expenses as sales expenses before calculating corporate income tax. When calculating the pre-tax deduction limit for advertising and business promotion expenses, the beverage brand holder or manager may exclude from consideration any advertising and business promotion expenses that have been pooled from the beverage brand users. The beverage brand holder or manager shall maintain separate accounting records for the aforementioned advertising and business promotion expenses and shall specially preserve, for inspection purposes, the data on the current year’s sales (operating) revenue of the brand users as well as supporting documentation proving the expenditures on advertising and business promotion.

The franchise model for beverage enterprises referred to in the preceding paragraph refers to a business model in which the brand owner or management entity authorizes a brand user to produce and sell its finished products in a designated region, and all advertising and promotional expenses that both parties could jointly bear for the brand’s products are centrally collected and borne by the brand owner or management entity.

3. Expenditures by tobacco enterprises on tobacco advertising and business promotion expenses shall not be deducted when calculating taxable income under any circumstances.

4. This notice shall be effective from January 1, 2008, to December 31, 2010.

Ministry of Finance, State Administration of Taxation

July 31, 2009