On December 28, 2006, the State Administration of Taxation (“SAT”) issued the Circular on the Relevant Issues Concerning the Settlement Management of Land Value-added Tax on Real Estate Development Enterprises ([2006]187 ?, the “Circular 187”) for the purpose of further strengthening the settlement management of land value-added tax on real estate Development enterprises. Upon the implementation of Circular 187 as of February 1, 2007, the land value-added tax would be levied on the basis of the actual settlement, rather than be levied in advance on the basis of sales figures.

Circular 187 sets out the following key requirements:

1. Settlement of land value-added tax on a project-by-project basis

i) The settlement of land value-added tax shall be made for each approved real estate development project;

ii) As for a project developed by stages, the settlement shall be made for each stage of the project;

iii) Where a development project includes both ordinary dwelling houses and nonordinary dwelling houses, the added value shall be calculated separately.

2. Settlement conditions for land value-added tax

i) Where it is under any of the following circumstances, the taxpayer shall settle its land value-added tax:

a) A real estate project is completed and sold out;

b) A real estate project that has not been completed but it is transferred as a whole;

c) The land use right is transferred.

ii) Under any of the following circumstances, the tax authority may require the taxpayer to settle its land value-added tax:

a) As for a real estate project completed and accepted, the construction area already transferred makes up 85% or more of the salable construction area of the whole project; or although this proportion is below 85%, the residuary salable construction area has been leased or used for self-purpose;

b) The sale is not completed upon the expiration of three years since the day when the sale (pre-sale) permit is obtained;

c) The taxpayer has applied for tax de-registration but has not gone through the formalities for the settlement of land value-added tax yet;

d) Other circumstances as prescribed by the provincial tax authorities.

A taxpayer that conforms to any of the above settlement conditions shall go through the settlement formalities at the tax authority within the time limit prescribed by the tax authority.

3. Collection of land value-added tax by verification

Where a real estate development enterprise is under any of the following circumstances, the tax authority may, by consulting the tax burdens of the local enterprises similar to it in terms of development scale and income level, collect land value-added tax against it by verification on the basis of the levying rate that is not lower than the advance levying rate:

i) It fails to set up accounting books in accordance with the provisions of laws and regulations;

ii) It destroys the accounting books without authorization or refuses to provide the data of tax payments;

iii) It has established accounting books, but the accounting items are confusing, or its information on costs, revenue vouchers, and expense vouchers are mutilated and incomplete and it is difficult to determine the transfer income or amount under the deductible items;

iv) It meets the settlement conditions of land value-added tax, but it fails to go through the settlement formalities within the prescribed time limit, or it is ordered by the tax authority to conduct settlement within a certain time limit but still fails to do so upon the expiration of the lime limit; or

v) The taxable basis declared is obviously much lower, and without reasonable ground