Company may sell products at a discounted price or with a rebate to promote sales. However, two conditions must be satisfied when giving or receiving such discount or rebate: firstly, it shall be expressly provided in relevant documents, for instance, in the distribution or supply contracts; secondly, both the seller and the buyer shall accurately and completely record such discount or rebate into the accounting books (Article 8 of the Anti-Unfair Competition Law of the People’s Republic of China (“AUCL”) & Article 6 of the Interim Provisions on Prohibiting Commercial Bribery). Failure to comply with either of the above conditions may turn such discount or rebate into a kickback, a typical commercial bribery behavior prohibited under AUCL, and both parties to the same transaction would likely be subject to penalties by the Administration of Industry and Commerce (“AIC”) or even be prosecuted with criminal charges. Where company grant rebate or discount in kind, the requirements above shall also apply. When delivering such rebate in kind, the seller shall issue the official value-added tax invoice which indicates the market price of the products to the buyer. Moreover, if the products as the rebate in kind are different from the products of the underlying transaction, it will become complicated as this may be exposure to the risk of commercial bribery in terms of gifts.
As a matter of administrative penalties for commercial bribery, AUCL does not require that the company or any of its employees has the motivation for bribery. As long as either of the parties to a transaction giving or receiving discount or rebate without recording the same accurately or completely into its accounting books, the risk of commercial bribery will ensue. Therefore, it is of crucial importance to accurately and completely record the discount and rebate in the accounting books as set forth by the relevant anti-bribery statutes