China Railway Construction tops entertainment costs

China Railway Construction Corp, China's second largest State-owned construction firm, has the highest entertainment costs among all publicly listed companies, media reported Monday.

There were 9 listed companies with entertainment costs exceeding 100 million yuan ($16 million) in 2012, the majority of them State-owned companies including Sinohydro Group Ltd, China CNR Corp, and China Railway Construction Corp, which disclosed the highest entertainment costs of all, the Xinhua News Agency reported.

The corporation's entertainment costs reached 830 million yuan last year, equivalent to 10 percent of its net profit, according to its 2012 annual report. Entertainment costs refer to expenditures on catering, accommodation, gifts, and travel arrangements for customers which are related to production and daily business operation. Entertainment costs for these purposes can be used as tax deductions.

When asked where the money is actually spent, Zhao Guangfa, former CEO of the company, was quoted Monday by China National Radio (CNR) as saying that in actuality "some companies could have even higher entertainment costs."

Listed companies may have manipulated account books to make entertainment costs appear lower, as only 60 percent of the costs are deductible before taxes, CNR quoted an unnamed certified public accountant as saying. Catering fees and gifts to customers and distributors can be often booked into meeting fees, which are 100 percent deductible before taxes, the accountant said.

Moreover, some deductible private expenditures that are not relevant to production and business operation are sometimes booked into entertainment costs in order to profit from the 60 percent deduction, according to the accountant.