Background: Article No.27 of “Corporate Income Tax Law” states that “the incomes incurred from the transfer of technologies, which meets the relevant requirements” shall be exempted or deducted from corporate income tax. At the same time, article No.90 of “Regulation on the Implementation of the Enterprise Income Tax Law” further stipulates that the portion not exceeding 5 million yuan obtained by a resident enterprise from technological transfer shall be exempted from CIT, and the excess shall be taxed at the reduced half rate in a taxable year.

Question: Shall all the incomes accrued from the transfer of technologies that do meet the above-mentioned requirements be applicable to favorable corporate income tax policies?

Answer: The answer is a definite NO. “Notice of the Ministry of Finance and the State Administration of Taxation on Issues concerning Enterprise Income Tax Policies on Technology Transfer by Resident Enterprises” (No.111 [2010] of the Ministry of Finance) limits the scope of “the technologies” applicable to favorable corporate income tax policies of tax exemption and reduction only to “the resident enterprise's transfer of patented technology, computer software copyright, integrated circuit layout design rights, new plant or bio-medicine varieties and other technologies as specified by the Ministry of Finance and the State Administration of Taxation.” In other words, the incomes incurred from enterprise’s transfer of know-how shall NOT be applicable to the aforesaid preferential CIT policies.