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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II EXAMINATION AND APPROVAL OF PRE-INCOME-TAX DEDUCTION OF PROPERTY LOSSES CHAPTER III EVIDENCE FOR THE DETERMINATION OF PROPERTY LOSSES CHAPTER IV DETERMINATION OF MONETARY ASSET LOSSES CHAPTER V DETERMINATION OF NON-MONETARY ASSET LOSSES CHAPTER VI DETERMINATION OF PERPETUAL OR SUBSTANTIAL ASSET DAMAGES CHAPTER VII DETERMINATION OF ASSET APPRAISAL LOSSES CHAPTER VIII DETERMINATION OF OTHER SPECIAL PROPERTY LOSSES CHAPTER IX LIABILITIES CHAPTER X SUPPLEMENTARY PROVISIONS CHAPTER I GENERAL PROVISIONS Article 1. These Measures are formulated according to the Law of the People's Republic of China on the Administration of Tax Collection and the detailed rules for the implementation thereof, the Interim Regulation of the People's Republic of China on Enterprise Income Taxes and the detailed rules for the implementation thereof for the purpose of further regulating and improving the administration of the pre-income-tax deduction of property losses of enterprises and promoting the detailed administration of enterprise income taxes. Article 2. The term "property" as mentioned in these Measures refers to the assets that are owned or controlled by enterprises and used for business operations and management activities and are related to the taxable incomes obtained, including cash, bank deposits, accounts receivable and prepaid (including notes receivable), inventories, investments (including authorized loans and authorized financial management), fixed assets, intangible assets (excluding commodity credits) and other assets. Article 3. The various property losses of enterprises can be divided, according to the nature of properties concerned, into the loss of monetary capital, loss of bad debts, loss of inventories, loss from investment transfer or liquidation, loss of fixed assets, loss of projects under construction and construction materials thereof, loss of intangible assets and loss of other assets; or be divided, according to the declaration procedures for deduction, into the property loss deducted upon declaration by enterprises themselves or the property loss deducted upon examination and approval; or be divided, according to the cause of loss, into the normal loss (including normal transfer, discarding as useless or liquidation), abnormal loss (including the loss resulted from the force majeure such as wars or natural disasters, loss resulted from derogation or theft due to poor management or loss resulted from policies, etc.), appraisal loss resulted from reorganization and perpetual and substantial damages. Article 4. The various property losses of an enterprise shall be deducted in the year when the losses are caused, and the said deduction can not be advanced or postponed. If an enterprise fails to declare property losses in time not as a result of calculation errors or other objective reasons, such losses shall not be deducted after expiry. If the examination and approval by the competent taxation authority is required under these Measures, the declaration shall be timely conducted according to the prescribed time and procedures. If the property loss is not deducted in time due to any reason attributable to the taxation organ, the declaration forms for tax payment of the year when the property loss is caused shall be adjusted upon approval of the competent taxation organ, and the taxable incomes shall be calculated again. In case the taxable incomes after adjustment are less than that prior to adjustment, the taxes overpaid in the year when the property loss is caused shall be refunded or to set off the taxes it owes or the payable taxes of the following term according to the relevant provisions, provided that the current tax year for the property loss will not change. Article 5. Where the property loss of an enterprise has been declared for deduction but the lost value has been recovered or compensated, the value recovered or compensated shall be incorporated into the taxable incomes in the year when the value is recovered or actually compensated. Where the accounts receivable can not be paid due to the creditor's reasons, including the accounts receivable that remain unpaid for more than three years, if the creditor has confirmed the loss and applied for pre-income-tax deduction according to these Measures, the creditor shall incorporate the above-mentioned receivable accounts into the taxable incomes of the current term and pay the corresponding enterprise incomes taxes. CHAPTER II EXAMINATION AND APPROVAL OF PRE-INCOME-TAX DEDUCTION OF PROPERTY LOSSES Article 6. The property loss resulting from the sale, transfer or sell-off of assets in the business operation and management activities of an enterprise, the normal loss of various inventories or the property loss resulting from the normal discarding of fixed assets as useless after they have reached or exceeded their service life shall be declared for deduction at the current term when the above-mentioned losses are actually caused. Article 7. The property losses of an enterprise resulted from any of the following causes can not be deducted when the enterprise declares the enterprise income taxes unless it is examined and approved by the competent taxation authority: (1) loss of the cash, bank deposits, inventories, short-term investments or fixed assets resulting from force majeure, such as natural disaster or war, or from poor management; (2) loss of bad debts of receivable or prepaid accounts; (3) loss of doubtful debts of a financial enterprise; (4) property loss confirmed due to perpetual or substantial damage to inventories, fixed assets, intangible assets or long-term investments; (5) investment loss incurred from the dissolution or liquidation of the invested party; (6) loss resulting from the appraisal of various assets that can be deducted; (7) property loss resulting from the relocation or expropriation as planned by the government; or (8) loss of direct loans other than the credit business between two or more enterprises that are permitted by the state. Article 8. The examination and approval of pre-income-tax deduction of property losses of an enterprise refers to the examination conducted over the relevancy of declaration materials and statutory conditions as provided by taxpayers according to the provisions. Where the taxation authority responsible for examination and approval needs to verify the contents of declaration materials, the verification shall be carried out by two or more designated functionaries. Where the workload of on-the-spot inspection is heavy or time-consuming because the amount of property loss is large or there is insufficient external lawful evidence, a taxation authority at the level of county (district) where the enterprise is located may be entrusted to organize the verification. A taxation authority may check the authenticity of approved pre-income-tax deduction of property loss. Article 9. The pre-income-tax deduction of property loss of an enterprise shall be generally undertaken by the competent taxation authority at the level of county (district) where the enterprise is located. The taxation authorities of provinces, autonomous regions, municipalities directly under the Central Government or cities under separate planning (hereinafter referred to as provincial taxation authorities) may subdivide the power of examination and approval on the basis of the amount of property loss. The property loss incurred from the relocation or expropriation as planned by the government shall be subject to the examination and approval of the taxation authority at the next higher level of the taxation authority of the place where the said government is located. Article 10. The pre-income-tax deduction of property losses of an enterprise shall not be subject to level-to-level examination and approval. The enterprise may file an application with the competent taxation authority at the level of county (district) where the enterprise is located or may directly file an application with the competent taxation authority responsible for examination and approval as prescribed by the provincial taxation authority. Article 11. The acceptance, examination and approval of applications for pre-income-tax deduction of property losses of enterprises by the taxation authorities at all levels shall be carried out by referring to the relevant provisions in the Notice of the State Administration of Taxation on Several Issues Concerning the Implementation of Taxation Administrative Licenses (No. 73 [2004] of the State Administration of Taxation), with the exception of hearings and public announcements. Article 12. Where a taxation authority at the county (district) level is responsible for examining and approving the pre-income-tax deduction of property losses, it shall make an examination and approval decision within 20 working days upon receipt of the application; where a taxation authority at the level of a city divided into districts is responsible for examining and approving the pre-income-tax deduction of property losses, it shall make an examination and approval decision within 30 working days upon receipt of the application; where a provincial taxation authority is responsible for examining and approving the pre-income-tax deduction of property loss, it shall make an examination and approval decision within 60 working days upon receipt of the application. If the situation is complex and needs to be verified and the above-mentioned examination and approval decision cannot be made within the prescribed time limit, the time limit may be extended for another ten days upon approval of the person-in-charge of the taxation authority at the same level, and the taxpayer shall be notified of the reasons for such extension. Article 13. the various property losses of an enterprise are subject to examination and approval shall be reported, once and for all, to the taxation authority for examination and approval within 15 days after a tax year ends. In case an enterprise needs to obtain evidence on the spot in the case of natural disaster or perpetual or substantial damage, it shall file an application for examination and approval during the term of preservation of evidence, or may file an application for examination and approval after a tax year ends. However, it must present the appraisal materials of intermediary institutions or technical appraisal departments of the state or those authorized by the state. Article 14. The pre-income-tax deduction of property losses of an enterprise shall be governed by the rule that the department in charge of examination and approval shall be held responsible. The taxation authorities at all levels shall incorporate the examination and approval of property loss into the assessment of position-related responsibility system, specify the procedures, clarify the responsibilities and establish a sound supervisory and regulatory system and a responsibility investigation system according to the requirements of these Measures. CHAPTER III EVIDENCE FOR THE DETERMINATION OF PROPERTY LOSSES Article 15. When an enterprise applies for the deduction of various property losses, it shall provide legal evidences showing that the property loss it reports has actually been incurred, and such evidence includes: external evidence with legal effects, economic appraisal certificates as issued by intermediary agencies, and internal evidence of the enterprise on certain matters. Article 16. The term "external evidence with legal effects" refers to the written documents with legal effects related to the property losses of an enterprise and issued by the judicial organs, public security organs, administrative departments or professional technical appraisal departments, etc., mainly including: (1) judgments and rulings of the judicial organs; (2) certificates and official replies of the public security organs on filing or conclusion of cases; (3) certificates of write-off, revocation and suspension of business operations issued by the administrative departments for industry and commerce; (4) public announcements of insolvent liquidation and documents of debt discharge of the enterprise; (5) public documents and documents of express prohibition of the government departments; (6) appraisal reports given by the professional technical appraisal departments of the state and those authorized by the state; (7) documents on the investigation of insured losses and documents on the calculation of settled damages, etc., issued by the insurance companies for insured assets; and (8) other evidence in conformity with the statutory conditions. Article 17. The term "economic appraisal certificates issued by intermediary agencies" refers to those special economic appraisal certificates or appraisal letters of opinions with respect to the given economic matters of an enterprise issued by tax agencies or other professional appraisal institutions that have statutory qualifications according to the principles of independence, objectivity and justice, on the basis of full investigation and study, demonstration and calculation, and upon professional conclusion and objective judgment. Article 18. An enterprise with a sound accounting system and a perfect internal control system can take the internal evidence on certain matters as the evidence for determining the property loss. The term of "internal evidence of the enterprise on certain matters" refers to the internal certificates or declarations on assuming liabilities issued by the enterprise in respect of the damages to discarding of or inventory shorts of various assets, mainly including: (1) the relevant accounting materials and original vouchers; (2) asset inventory-taking forms; (3) business contracts relating to the economic acts concerned; (4) appraisal documents or materials of the internal technical appraisal department of an enterprise (with respect to property losses in relatively large amounts and with significant impacts, trade experts shall be retained to take part in the technical appraisal and demonstration); (5) internal examination and approval documents and explanations about the relevant conditions of the enterprise; (6) the explanations about the determination of liabilities of the liable person and of the compensation with respect to the losses incurred from poor business operation and management; and (7) declarations of legal representative, principals and financial person-in-charge of an enterprise on the assumption of tax-related legal liabilities for the authenticity of certain matters. CHAPTER IV DETERMINATION OF MONETARY ASSET LOSSES Article 19. With respect to the cash shortage sorted out by an enterprise, the amount of the short value less the value of the compensation made by the liable person shall be determined as loss. The cash loss shall be confirmed on the basis of the following evidences: (1) cash inventory forms confirmed by the cash keeper (including the records back to the base date); (2) explanations of the cash keeper on the shortage and the relevant ratification documents; (3) explanations on the determination of liabilities and the corresponding compensations if the shortage is incurred from poor management; and (4) relevant judicial case materials if any crime is involved. Article 20. Any of the following conditions shall be met when applying for pre-income-tax deduction of loss of bad debts occurred to the receivable accounts or pre-paid accounts of an enterprise: (1) The debtor is declared bankrupt, dissolved (including being ordered to shut down by the government), deprived of industrial and commercial business license, dead or missing, and its remaining property or legacy is not sufficient to repay its or his debts; (2) The debts which remain unpaid for more than three years and there is conclusive evidence showing that the debtor has no capacity to repay the debts; (3) The bad debts have resulted from a qualified debt reorganization; or (4) The accounts receivable can not be recovered as a consequence of force majeure, such as natural disasters, wars or international political events, etc.. Article 21. If the debtor which is under any of the circumstances as described in Article 20 of the present Measures has already been liquidated, the part of liquidation property that can not be recovered after deducting the part of assets that have actually repaid shall be determined as loss. For the part that remain unliquidated, the intermediary institution shall issue an economic appraisal certificate upon its professional conclusion and objective judgment, and the part that really cannot be recovered shall be determined as loss. With respect to the receivable accounts of a debtor who has already been missing or dead, if his/her legacy is not sufficient to repay the debts or it is impossible to find the debtor to recover the sums after the public security organ issues a certificate of the missing or dead status of the debtor, the intermediary institution shall issue an economic appraisal certificate upon professional conclusion and objective judgment, and the part that really cannot be recovered shall be determined as loss. If the accounts receivable can not be recovered from the debtor as a consequence of force majeure, such as natural disaster, war or international political event, an enterprise shall make a special explanation, and after the intermediary institution issues an economic appraisal certificate upon professional conclusion and objective judgment or after the relevant certificates issued by the embassy (consulate) of China stationed in the foreign country are acquired, the part that really cannot be recovered shall be determined as loss. With respect to the accounts receivable that can not be recovered after the due date, if there is any judgment or ruling of the court against the enterprise, or if the court makes the rule of terminating (discontinue) the execution because, though the enterprise wins the case, yet the debtor is insolvent, such accounts receivable shall be determined as loss on the basis of the legal documents of judgment, ruling or termination (discontinuance) of execution of the court. Among the accounts receivable that can not be recovered within the due time, with respect to those each of which is of small value and is not adequate to make up the cost for recovery, the enterprise shall make a special explanation, and after the intermediary institution issues an economic appraisal certificate upon professional conclusion and objective judgment, the part that really cannot be recovered shall be determined as loss. With respect to the accounts receivable which have not been recovered within 3 years or more after the due date, if the enterprise has the records of negotiation and urgency for payment according to law, and it has been confirmed that the debtor is insolvent, has been in the red for 3 consecutive years or has suspended its business operations for 3 consecutive years, and it can also be confirmed that there is no business transactions between the enterprise and that debtor within the last 3 years, such accounts receivable may be determined as loss after the intermediary institution issues an economic appraisal certificate upon professional conclusion and objective judgment. With respect to the accounts receivable that have not been recovered within 3 years or more after the due date, if the debtor is overseas or in Hong Kong, Macao or Taiwan Region and the sums can not be recovered after making urges for payment according to law, such accounts receivable shall be determined as loss after acquiring of the relevant certificate issued by the overseas intermediary institution or those issued by the embassy (consulate) of China stationed in the foreign country. Article 22. The following evidence shall be provided when applying for pre-income-tax deduction of loss of bad debts incurred to the accounts receivable or pre-paid of an enterprise if they are under the following circumstances: (1) public announcements made by the court on the bankruptcy and the documents of debt discharge in the insolvent liquidation; (2) certificates of write-off or revocation issued by the administrative department for industry and commerce; (3) documents of relevant administrative decisions of the government on withdrawal or ordering to shut down; (4) certificates of the missing or dead status issued by the public security organ or any other relevant department; (5) conclusive evidence showing that the debts which has been outstanding for more than three years or the debtor has no capacity to repay the debts; (6) the debt reorganization agreement of the creditor, the judgment of the court, or the document on approving the debt-to-equity swap of a state-owned enterprise; and (7) the judgment of the court or the certificate issued by the local taxation authority where there is any current account with an associated party. CHAPTER V DETERMINATION OF NON-MONETARY ASSET LOSSES Article 23. The loss of inventories of an enterprise refers to those net losses caused by inventory shorts, deterioration, phasing out, derogation, discarding as useless and theft of the relevant commodities, finished products, semi-finished products, products under manufacturing, various materials, fuels, packages, and low-value consumable products, etc. Article 24. With respect to the short inventory, the balance of their value less the amount compensated by the liable person shall be determined as loss on the basis of the following evidence: (1) inventory forms; (2) economic appraisal certificates issued by an intermediary institution; (3) explanations of the inventory keeper on the inventory shorts; and (4) the basis for determining the value of short inventories (including the relevant warehouse entry formalities, price of identical or similar inventories as indicated on the purchase invoices, or other basis for determination); and (5) explanations about the determination of relevant liabilities within the enterprise and the compensation made by the liable person, and the internal ratification documents. Article 25. With respect to the inventory discarded as useless or derogated, the balance of its book value less the residual value and the amount compensated by the insurance company or the liable person shall be determined as loss on the basis of the following evidence: (1) With respect to the inventory each of which or each batch of which is of relatively small value, the relevant internal technical body of the enterprise shall issue the technical appraisal certificate; (2) With respect to the inventory each of which or each batch of which is of relatively large value, the enterprise shall obtain the technical appraisal certificate issued by the relevant technical appraisal department of the state or the intermediary institution with the qualification for technical appraisal; (3) Where any insurance claim is involved, an explanation shall be made on the settlement of claim by the insurance company; (4) Explanations about the discarding and derogation of the inventory goods and the examination and approval documents within the enterprise; (5) Explanations about the residue value; and (6) Explanations about the determination of the relevant liabilities within the enterprise and the compensation made by the liable person, and the internal ratification documents. Article 26. With respect to the inventory goods that have been stolen, the balance of its book value less the insurance compensation and the compensation made by the liable person shall be determined as loss on the basis of the following evidence: (1) records of case reporting to the public security organ, certificates of the case filing, solving and conclusion by the public security organ; (2) explanations about the determination of the liabilities of the liable persons involved and the corresponding compensations; and (3) explanations about the settlement of claim of the insurance company where any insurance claim is involved. Article 27. The loss of fixed assets includes the net loss incurred from the inventory shorts, phasing out, derogation, discarding, loss and theft of the houses and buildings, machines and equipment, transportation vehicles, tools and apparatus, etc., of an enterprise. Article 28. With respect to the inventory shorts of fixed assets, the balance of the book value thereof less the amount compensated by the reliable person shall be determined as loss on the basis of the following evidence: (1) inventory forms of fixed assets; (2) explanations about the inventory shorts, with respect to the inventory shorts of fixed assets each or each batch of which is of relatively large value, the enterprise shall give a special explanation item by item and have the intermediary institution issue economic appraisal certificates upon professional conclusion and objective judgment; and (3) documents about the determination of relevant liabilities within the enterprise and the internal ratification documents, etc.. Article 29. With respect to the fixed assets that have been discarded as useless or derogated, the balance of the net book value thereof less the residual value, insurance compensation and compensation made by the reliable person shall be determined as loss on the basis of the following evidence: (1) appraisal certificates issued by the relevant departments within the enterprise; (2) where the fixed assets each of which or each batch of which has been discarded as useless or derogated, the enterprise shall make a special explanation item by item and entrust the institution with the technical appraisal qualification to issue a appraisal certificate; (3) where the fixed assets have been derogated or discarded as useless as a result of force majeure (natural disasters, accidents or battles), the enterprise shall have the appraisal report issued by the relevant functional department, such as the certificate of suffering from a disaster as issued by the fire control department, on-the-spot accident handling report or certificate of vehicle damages issued by the public security organ, the certificate of house demolishing issued by the house administration department, and the boiler or elevator inspection report issued by the security inspection department, etc.; (4) explanations about the discarding and derogation of fixed assets and the internal ratification documents of the enterprise; and (5) where any insurance claim is involved, the explanations on the settlement of claim shall be given by the insurance company. Article 30. With respect to the fixed assets that have been stolen, the balance of the net book value thereof less the compensation made by the liable person and the insurance compensation shall be determined as loss on the basis of the following evidence: (1) records of case reporting to the public security organ, and materials of case filing, solving and conclusion of the public security organ; (2) explanations on the determination of the relevant liabilities within the enterprise and the compensation made by the liable person, and the internal ratification documents; and (3) explanations on the settlement of claim given by the insurance company where any insurance claim is involved. Article 31. The loss of projects under construction and project materials thereof refers to the loss resulting from the projects of an enterprise which have already started but have been stopped from construction, abandoned and discarded as useless, or demolished, as well as the loss resulting from the discarding or disposing at discounted price of the corresponding project materials as a consequence. Article 32. With respect to a project under construction which has been stopped from construction, abandoned and discarded as useless, or demolished, the balance of the book value thereof less the residual value shall be determined as loss on the basis of the following evidence: (1) documents of the state expressly ordering the stop of construction; (2) documents on construction suspension and demolishing issued by the relevant government departments; (3) appraisal opinions, explanations of causes and ratification documents issued by the enterprise with respect to the project under construction which has been discarded or abandoned; with respect to the discarding as useless of a project under construction of which the value is relatively large, the technical appraisal opinions issued with the participation of trade experts are required; and (4) the basis for determining the actual input of the project. Article 33. With respect to a project under construction which has been derogated as a result of a natural disaster or accident, the balance of the book value thereof less the residual value, insurance compensation and liable compensation shall be determined as loss on the basis of the following evidence: (1) the certificate proving the occurrence of the relevant natural disaster or accident; (2) the explanations on the settlement of claim where any insurance claim is involved; and (3) explanations and ratification documents about the determination of the relevant liabilities and the compensation of the liable person within the enterprise. Article 34. With respect to the loss of project materials, the determination of loss shall be carried out by referring to the provisions on the determination of inventory loss in these Measures. CHAPTER VI DETERMINATION OF PERPETUAL OR SUBSTANTIAL ASSET DAMAGES Article 35. An inventory good under one or more of the following circumstances shall be deemed as having suffered from perpetual or substantial damages: (1) It has become rotten and deteriorated; (2) It has been overdue and has no transferable value; (3) It is no longer needed in operation, and has no use value or transferable value; or/and (4) It has been proved in other way as having no use value or transferable value. Article 36. A fixed asset under any of the following circumstances shall be deemed as having suffered from perpetual or substantial damage: (1) It has been left unused for long and has no transferable value; (2) It is unable to be used due to technological progress; (3) It has been damaged and has no use value or transferable value; (4) Due to its own reason, the use of it will produce a large quantity of unqualified products; or (5) Other circumstances under which it is substantially unable to bring economic benefits to the enterprise. Article 37. An intangible asset under one or more of the following circumstances shall be deemed as having suffered from perpetual or substantial damages: (1) It has been substituted by other new technologies, and has no use value or transferable value; (2) It has exceeded the time limit of legal protection, and is unable to bring economic benefits to the enterprise; or/and (3) It has been proved in any other way as having lost the use value and transferable value. Article 38. An investment under one or more of the following circumstances shall be deemed as having suffered from perpetual or substantial damage: (1) The invested party has been declared bankrupt, revoked or shut down or written off or deprived of its industrial and commercial business license in accordance with the law; (2) The financial standing of the invested party is seriously deteriorated, a huge loss has accumulatively occurred, and the invested party has ceased its business for 3 consecutive years or more, and has no plans of reorganization, etc. to restart its business; (3) The financial standing of the invested party is seriously deteriorated, a huge loss has accumulatively occurred, and the stock trading of the invested party has been removed from the stock exchange and has been suspended for 1 year or more; or/and (4) The financial standing of the invested party is seriously deteriorated, a huge loss has accumulatively occurred, and it has been liquidated. Article 39. Where there is conclusive evidence proving that any inventory goods, fixed asset, intangible asset or investment has suffered from property losses or perpetual or substantial damage, the property loss shall be confirmed after the converted income, recoverable amount and liability, as well as insurance compensation are deducted. The recoverable amount can be determined by an intermediary institution. If it cannot be appraised by any intermediary institution, the recoverable amount of a fixed asset or long-term investment may be generally and provisionally determined as 5% of the book value, and 1% for an inventory. The accounting records shall be preserved for all kinds of assets that are confirmed as having suffered form perpetual or substantial damage. When each asset is actually liquidated for discarding, the losses and proceeds shall be confirmed on the basis of the actual liquidation and rejection situation and the anticipated recoverable amount. Article 40. The property loss shall be confirmed on the basis of the following evidence if an inventory good, fixed asset, intangible asset or investment is suffered from perpetual or substantial damage: (1) explanations of economic and technical factors for the elimination or deterioration of assets; (2) written statements as signed by the legal representative, main principal or financial person-in-charge of an enterprise on the fact that the relevant asset has become rotten and deteriorated, has no use value or transferable value or has been damaged; (3) the quality appraisal report as issued by an intermediary institution or the relevant technical department; (4) documents on the time limit for legal protection of an intangible property; (5) an announcement on the bankruptcy and the documents on bankruptcy and discharge of the relevant invested party, the write-off or withdrawal documents issued by the administrative department for industry and commerce, the administrative decision of the relevant governmental department; or legal or other certificates on the termination of operation or suspension of trading; (6) explanations about the recovery of costs and value of the relevant assets; and (7) certificates on the distribution of remaining assets upon liquidation of the invested party. Article 41. Where an enterprise entrusts a financial institution to provide loans to any other entity and the said entity can not pay loans in time, it shall be dealt with by referring to the provisions on the disposal of investment transfer loss in these Measures. CHAPTER VII DETERMINATION OF ASSET APPRAISAL LOSSES Article 42. The following conditions shall be met if an application for pre-income-tax deduction is filed for the loss of various assets of an enterprise confirmed upon appraisal: (1) the asset appraisal loss occurred in the enterprise asset settlement and verification as uniformly organized by the state; (2) the appraisal loss occurred in the various taxable reorganizations of an enterprise; and (3) the tax payment adjustment has been conducted to the net value increased or losses from various asset appraisals in case an enterprise conducts any tax-free reorganization. Article 43. The asset appraisal loss of various assets of an enterprise shall be determined on the basis of the following evidence: (1) documents on the asset liquidation and verification as uniformly organized by the state (excluding the regular and systematized asset liquidations in the daily administration of state assets); (2) asset appraisal materials of intermediary institutions; (3) asset appraisal confirmation documents of the governmental department; (4) certificates on the tax payment for a taxable reorganization business; and (5) certificates on the tax payment adjustment if a tax-free reorganization business involves the value increase or loss incurred from the asset appraisal. CHAPTER VIII DETERMINATION OF OTHER SPECIAL PROPERTY LOSSES Article 44. The following conditions shall be met if an application for pre-income-tax deduction of property loss incurred from the relocation or expropriation planned by the government is filed: (1) having a definite legal and policy basis; and (2) not belonging to the government apportion. Article 45. Where an enterprise is relocated or expropriated as planned by the government, its property loss shall be determined according to the following evidence: (1) documents on administrative decisions of the relevant governmental departments and the basis of legal policies; (2) appraisal certificates of professional technical departments or intermediary institutions; and (3) the basis for determining the book value of an enterprise's properties. Article 46. Except for the financial insurance institutions (including internal financial companies of enterprise groups established upon approval) that can engage in the credit business as prescribed by the state, no enterprise may directly engage in the credit business, as is a general rule. Except the commercial credits that result from the sale of commodities between enterprises, the loss incurred from other fund lending may not be deducted unless it is so approved by the State Council. Article 47. Where an enterprise offers guarantee relating to its taxable incomes and shall assume joint and several liability because the warrantee fails to pay its debts on schedule, and upon check and demand for payment, the warrantee has no capacity for payment, the unrecoverable loss shall be administrated by referring to the provisions on the loss of bad debts in these Measures. Where an enterprise offers loan guarantee not relating to its taxable incomes to any other independent taxpayer and shall assume the principal and interests because the warrantee can not pay off its loans, the loss incurred therefrom can not be declared for deduction. Article 48. Where an enterprise fails to redeem the assets under mortgage on schedule and the said assets are thus auctioned or sold off, the balance of the book value less the sold-off value may be determined as property loss on the basis of the auction or sell-off certificate. CHAPTER IX LIABILITIES Article 49. A taxation authority shall, according to the time and procedures as prescribed in these Measures and the principles of fairness, transparency, honesty, high efficiency and facilitating taxpayers, timely accept, examine and approve the matters of examination and approval of property losses declared by taxpayers. If it fails to timely accept, examine or approve the said matters due to non-objective factors or fails to carry out the examination, approval or verification in accordance with the prescribed procedures and causes any errors of examination and approval, it shall be subject to liabilities according to the Law of the People's Republic of China on the Administration of Tax Collection and the provisions on the responsibility system of tax law enforcement. Article 50. A taxation authority's examination and approval of an application for pre-income-tax deduction of property loss filed by an enterprise may not change the declaration-related liabilities borne by the enterprise. Where an enterprise overstates the property loss by forging or altering the relevant materials and evidence, or fails to subject itself to the examination and approval as required and directly carries out the pre-income-tax deduction of property loss and causes the reduction of taxes, the taxation authority shall deal with it according to the Law of the People's Republic of China on the Administration of Tax Collection. Where an enterprise fails to pay or underpays the taxes payable due to the mistake of the taxation authority in its examination and approval or verification, it shall be implemented according to Article 52 of the Law of the People's Republic of China on the Administration of Tax Collection. Article 51. When a taxation authority carries out tax payment inspection of property loss deducted upon declaration by an enterprise itself or upon examination and approval, it shall examine the authenticity, legality and rationality of the relevant evidence according to the principle of the essence overweighing the form, conducts tax payment adjustment if there is conclusive evidence proving that the pre-income-tax deduction is caused due to untrue, illegal or irrational evidence or estimation, and shall distinguish the conditions and responsibilities and punish the guilty taxpayers and the relevant responsible person according to the provisions. Where any technical appraisal department or intermediary institution provides any false certificate to the taxpayer and causes the failure to pay or underpay taxes, the taxation authority shall deal with it according to the Law of the People's Republic of China on the Administration of Tax Collection and the detailed rules for the implementation thereof. CHAPTER X SUPPLEMENTARY PROVISIONS Article 52. The bureaus of state taxation and local taxation of all provinces, autonomous regions, municipalities directly under the Central Government and the cities under separate state planning may formulate their specific detailed implementation measures according to these Measures. Article 53. These Measures shall come into force as of September 1, 2005. The Administrative Measures for the Pre-tax Deduction of Property Losses of Enterprises (No. 190 [1997] of the State Administration of Taxation) as printed and distributed by the State Administration of Taxation on December 16, 1997 shall be simultaneously repealed. |
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