state Administration of Taxation

(State Administration of Taxation: 28 April 1994 Coded Guo Shui Fa [1994] No. 114)

To the tax bureaus of various provinces, autonomous regions and municipalities, the tax bureaus of various cities with independent planning, the tax bureaus of Shenyang, Changchun, Harbin, Nanjing, Wuhan, Chengdu, Xian and Guangzhou and various subbureaus of the Offshore Oil Tax Administration:

In accordance with the stipulations of Article 3 of the State Council Circular On Questions Related to the Provisional Regulations Concerning the Collection of Applicable Value-Added Tax, Consumption Tax and Business Tax on Foreign-Funded Enterprises and Foreign Enterprises, we hereby issue to you the following circular on questions concerning the levy of value-added tax on Sino-foreign cooperative exploitation of crude oil and natural gas in the oil-and gas-fields (hereinafter referred to as cooperative oil-and gas-fields):

I. Value-added tax is paid in kind for the crude oil and natural gas exploited from the cooperative oil-and gas-fields, the output of crude oil and natural gas exploited from those oil-and gas-fields, after deducting the amount of oil (gas) used for petroleum operation and the amount of loss, shall be taken as the basis for calculating tax.

II. In view of the fact that unified sales of the crude oil and natural gas exploited from the cooperative oil-(gas-) fields are adopted, value- added tax is calculated temporarily in accordance with the total amount used each time for sales by cooperative oil-(gas-) fields. The crude oil and natural gas in kind on which value-added tax is calculated and levied shall be sold together with the crude oil and natural gas from the cooperative oil-(gas-) fields.

III. The crude oil and natural gas materials on which value-added tax is levied shall be put in storage after deducting their own actual sales expenses on the basis of the actual sales amount. The pricing methods for the sales of crude oil and natural gas shall be reported in advance to the competent tax authorities for examination.

IV. Tax shall be paid for the crude oil and natural gas of the cooperative oil-(gas-) fields on the basis of an individual time, the concerned party shall declare tax payment within five days (the time can be postponed if the last day is a legal festival or holiday) from the day on which the sales payments each time shall be included in the seller's bank account (the latest time shall not go beyond the last day for payment as set in the contract), for those who fail to declare tax payment by exceeding the time limit, the matter shall be handled in accordance with related stipulations of the Law of the People's Republic of China on the Collection and Management of Tax.

V. If the sales amount is settled in Foreign exchange for the crude oil and natural gas sold by the cooperative oil-(gas-) fields, the state foreign exchange price quoted on the day of sales or the first day of the current month may be chosen for the Renminbi conversion rate for the sales amount, the rate, once set according to the listed price through selection shall not be changed within one year.

VI. The China Oil Corp. participates in cooperation shall be responsible for the matters concerning declaration of payment of value-added tax. While declaring tax payment, the oil corporation shall also send the detailed materials including the sales price, sales expenses and the buyer of the current crude oil and natural gas. It shall also send reports on the output, stock, distribution amount and sales amount of the cooperative oil-(gas-) fields to the competent tax authorities on a monthly or quarterly basis, as well as other related materials required by competent tax authorities.

VII. While selling crude oil and natural gas, the cooperative oil-(gas-) fields shall issue value-added tax special invoice to the purchaser in accordance with regulations. The concrete method for issuing value-added special invoice is: "The sales amount containing tax shall" be filled in the "column of the combined total of price and tax"; the tax amount worked out on the basis of the formula: the sales amount containing tax x 5% tax rate shall be filled in the "column of tax amount"; the belance of the total amount of price and tax-the tax amount shall be filled in the "column of the sum of money"; the total sales volume shall be filled in the "column of quantity"; the actual sales unit price shall be filled in the "column of unit price"; the "column of tax rate" is to be left vacant. The tax amount listed in the "column of tax amount "is the amount to be deducted from the purchase item of the purchaser's value- added tax.

VIII. The self-managed offshore oil-(gas-) fields of the China Offshore Oil Corp. shall act in light of the above-mentioned related regulations.