(5) The Explanations of reasonable commercial objectives of establishment of offshore holding companies by foreign investors.

　　(6)　Other relevant documents required by Taxation Authorities.

　　Where administrating tax authorities， upon review and examination of the documents submitted by foreign investors， deem such offshore holding company to be a vehicle incorporated for the purpose of tax evasion， it has the power to re-classify the share transfer transaction in according to the nature of economies， deny the existence of offshore holding company and impose 10% income tax to the transfer of shares after the examination by the State Administration of Taxation.

　　In the second place， when non-resident enterprises transfer Chinese resident enterprises to affiliated parties in the unfair price compared to the fair and independent transaction to reduce the taxable income， tax authorities have the power to adjust the income by proper methods.

　　In the third place， provisions contained in Circular 698， share transfer income refers to difference between share transfer price and share cost. Share transfer price includes all sum received by share transfer assignors. In the event of invested enterprises have non-allocated profit or various funds after tax profit drawing， the invested enterprises shall not deduct aforesaid income sum from share transfer price. Cost of shares refers to real contribution sum paid by share transfer assignor to Chinese domestic company， or transfer sum paid to original assignors in the time when assignors purchased these shares.

　　Influence to the Oversea IPO''s and M&A

　　As the Circular 698 enforced from January 1， 2008， the new rule will significantly impact a great number of foreign investor which use the offshore vehicle to invest in PRC as it potentially imposes the new onerous administrative and disclosure obligation on foreign non-resident investors. Non-resident enterprises shall review the transfer condition of Chinese domestic enterprises to decide the next step whether to calculate and submit the enterprise income tax (direct transfer) or to submit the relevant document to Local Tax Authorities in the place where Chinese domestic enterprises located (indirect transfer). However， some issues in Circular 698 still remain to be clarified such as， how to define an “actual tax burden being lower than 12.5%”， how will SAT become aware of a share transfer which take place offshore. We need some time to observe the measures implemented in the future to clarify the above issues.