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	OFFICIAL REPLY OF THE STATE TAXATION ADMINISTRATION HANDLING INCOME TAX ON THE GOODS PURCHASED BY FOREIGN-FUNDED ENTERPRISES AND FOREIGN ENTERPRISES THROUGH FALSELY ISSUE OF SPECIAL INVOICES FOR VALUE-ADDED TAX

	(Letter No. 112 [2003] of the State Taxation Administration promulgated on February 9, 2003)


SUBJECT : CORPORATE TAX; DEDUCTIONS
ISSUING DEPARTMENT : STATE ADMINISTRATION OF TAXATION
ISSUE DATE : 02/09/2003
IMPLEMENT DATE : 02/09/2003
LENGTH : 259 words
TEXT :

"Request for Instruction on the Income Tax Issue Concerning the Goods Acquired from Falsely Making out Special Invoices for Value-Added Tax" (No. 198 [2002] of Xiamen Administration of State Taxes) has been received. With respect to the goods purchased by foreign-funded enterprises and foreign enterprises (hereinafter referred to enterprises) through falsely making out special invoices for value-added tax, and the amount of value-added tax to be repaid, we hereby give the following official reply on the issue of whether the enterprise's taxable income in calculation shall be deducted after the taxation organ has investigated the goods and punished the violator in accordance with the law:

In accordance with Article 17 of the Income Tax Law of the People's Republic of China for Foreign-Funded Enterprises and Foreign Enterprises, all the accounting records of an enterprise must be complete, accurate, and attached with lawful documents as the basis for keeping accounts. Therefore, if an enterprise is unable to obtain lawful invoices for purchasing goods prescribed, and it is unable to determine the authenticity and accuracy of the enterprise's payment, then the payment made at the time of purchase shall not, when the enterprise's taxable income is calculated, be deducted as costs; in accordance with the Provisions on the Accounting of Value-Added Tax of the Ministry of Finance (No. 83 [93] of the MOF), the value-added tax paid by an enterprise (including the value-added tax repaid after the investigation on obtaining falsely made-out special invoices for value-added tax) shall not, when the enterprise's taxable income is calculated, be deducted as costs, either.