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Since the 2001 Enterprise Accounting Rules (No. 25 [2000] of the Ministry of Finance Concerning Accounting) was enforced, the taxation organs at the basic level and many enterprise financial employees report that it is necessary to properly separate the accounting systems from tax laws, but the differences also need to be coordinated. In order to mitigate the accounting costs of taxpayers and reduce the cost for both the levier and the payer to abide by the tax laws, contribute to the implementation of enterprise income tax policies and strengthen the administration and collection, we have studied the issue jointly with the Ministry of Finance and other relevant departments, and in accordance with the relevant provisions in the Interim Regulation of the People's Republic of China on Enterprise Income Tax, we hereby give our notice as follows regarding some income tax policies that need to be adjusted for the implementation of the Enterprise Accounting Rules: I. Expenses for Enterprises to Borrow Loans for Investments Where the expenses of a taxpayer arising from loans for overseas investment conform to Article 6 of the Interim Regulation of the People's Republic of China on Enterprise Income Tax and Article 36 of the Measures on Pre-tax Deduction of Enterprise Income Tax (No. 84 [2000] Promulgated by the State Taxation Administration), they may be directly deducted, and need not be capitalized and calculated into the costs for investment. II. Donations Made by Enterprises (1) Where an enterprise donates the raw materials, fixed assets, intangible assets or negotiable instruments (for commercial enterprises, purchased commodities shall be included) which it has produced, entrusted for processing or purchased, such donation shall divided into two items according to the fair value, namely, the sale and the donation, for the handling of income tax. An enterprise's donation shall not, unless it is made for public welfare or relief provided by the laws and regulations on taxation, be deducted before taxes are paid. (2) The monetary assets donated to an enterprise must be included into the current taxable income, and for which the enterprise income tax shall be calculated and paid. (3) The non-monetary assets donated to an enterprise must be subject to income confirmation according to the entry value of the assets when the donation is accepted, and be included into the current taxable income, for which the enterprise income tax shall be calculated and paid. If the amount of income donated to the enterprise is large, and is indeed difficult to be included into one tax year for tax payment, it may, upon examination and confirmation by the competent taxation organ, be averagely calculated into the taxable income of each year within a period of not more than 5 years. An enterprise that accepts donated inventories, fixed assets, intangible assets or investments, may, in accordance with the tax laws, at the time of using them in business operation or future sale for disposal, carry over the inventory sales cost, investment transfer cost or, deduct the depreciation of fixed assets or the amount of amortized intangible assets. III. Reserve Drawn by Enterprises (1) The items permitted to be deducted prior to enterprise income tax shall follow the principle of truthful deduction of the amount actually occurred. Except for other taxation provisions of the state, any form of reserve (including asset reserve, risk reserve or wage reserve) drawn by the enterprise according to the accounting rules, etc. shall not be deducted before enterprise income taxes are paid. (2) For the assets over which the enterprise has drawn a reserve fund for value decrease, depreciation or bad debt, if the taxable income has been increased at the time of filing tax returns, the enterprise shall be permitted to make an adverse tax payment adjustment regarding the write-off reserve due to disposal of the relevant assets by value recovery or transfer; for the fixed assets and intangible assets among the above mentioned assets, the deductible depreciated or amortized amount may be determined on the basis of the book value before the reserve is drawn. (3) For any item of reserve on which the enterprise has drawn and made tax payment adjustment, if conclusive evidence show that the principle of cautiousness is unduly applied, and it is deemed as a major accounting error to have been corrected, an adverse tax payment adjustment may be made. For the future balance sheet matters of the enterprise before it files tax returns at the end of the year, the adjustment of payable income tax involved shall be deemed as the tax payment adjustment of the accounting report year; while for the future balance sheet matters of the enterprise after it files tax returns pays the taxes at the end of the year, the adjustment of involved payable income tax shall be deemed as the tax payment adjustment of the current year. IV. Permanent or Substantial Damage of Enterprise Assets (1) When there is conclusive evidence to prove that any item of assets of an enterprise has suffered from permanent or substantial damage, it shall be confirmed as property loss after the converted income, recoverable amount and liability, as well as insurance compensation are deducted. (2) An enterprise shall timely report the deducted property losses, and shall, if in need of examination by the taxation organ, timely submit it for examination, instead of reallocating it within different tax years. If the enterprise intentionally fails to report the property loss not as a result of calculation errors or other objective reasons, such loss shall not be deducted after expiry. If the loss is not deducted due to the taxation organ's reason, the forms of tax returns of the current year must be adjusted after approval by the competent taxation organ, and the tax amount shall be deducted and refunded accordingly, provided that the current tax year for the property loss shall not be changed. (3) For all items of property losses reported by the enterprises and accepted by the taxation organ, the examination and approval formalities must, as a general rule, be completed before the tax returns are filed at the end of the year. The taxation organs at all levels must go through the examination procedures within the prescribed time limit. Unless there arises any dispute over whether the assets suffer from permanent or substantial damage, the procedures shall not be delayed without any justifiable reason, otherwise the persons involved shall be subject to liabilities in accordance with the Law of the People's Republic of China on the Administration of Tax Collection and the relevant provisions of the responsibility system of enforcement of taxation laws; in case of any dispute, the parties involved shall timely request the taxation organ at the higher level for instruction. (4) When any inventory is under one or more of the following circumstances, it shall be deemed to have suffered from permanent substantial damages: 1. it has become moldy 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; 4. it has been proved in other way to have no use value or transferable value. (5) A fixed asset under any of the following circumstances shall be deemed to have permanent or substantial damage: 1. it has been left unused for long, and will no longer be used in the foreseeable future, and has no transferable value; 2. it is unable to be used due to technology progress or other reasons; 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; 5. other circumstances under which it is substantially unable to bring economic benefits to the enterprise. (6) When any intangible asset is under one or more of the following circumstances, it shall be deemed to have suffered from permanent or substantial damage: 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; 3. it has been proved in other way to have lost the use value and transferable value. (7) When an investment is under one or more of the following circumstances, it shall be deemed to have suffered from permanent or substantial damage: 1. the invested entity has been declared bankrupt in accordance with the law; 2. the invested entity is revoked in accordance with the law; 3. the invested entity has ceased its business for 3 consecutive years or more, and has no plans of reorganization, to renew its business; 4. other circumstances which can prove that a certain investment is unable to bring any more economic benefits to the enterprise. V. Pension, Medical and Unemployment Insurances (1) The supplementary pension insurance and supplementary medical insurance paid by an enterprise for all its employees according to the proportion and rates prescribed by the State Council or the people's government at the provincial level may be deducted before tax payment. (2) The basic or supplementary pension, medical and unemployment insurances made up by an enterprise for all its employees according to the proportion and rates prescribed by the State Council or the people's government at the provincial level may be directly deducted at the current account when they are made up. If the amount is large, the competent taxation organ may demand the enterprise to deduct them averagely by installments within a period of not less than 3 years. VI. Reorganization of Enterprises (1) In the reorganization business of an enterprise, including the transfer of entire assets, substitution of entire assets, merger and division, which conform to the Notice of the State Taxation Administration on Some Income Tax Issues Concerning the Business of Investment with Enterprise Stock Rights (No. 118 [2000] Promulgated by the State Taxation Administration) and the Notice of the State Taxation Administration on the Income Tax Issues Concerning the Business of Merger and Division of Enterprises (No. 119 [2000] Promulgated by the State Taxation Administration) but the income from transfer of assets is temporarily not confirmed, for the enterprise that obtains the marginal price or payment of non-share rights, the increased value corresponding to the marginal price or payment of non-share rights included in the transferred or disposed assets shall be confirmed as the current taxable income. (2) For the reorganization by means of transfer of entire assets, which conforms to Item (2) of Article 4 of the Notice of the State Taxation Administration on Some Income Tax Issues Concerning the Business of Investment with Enterprise Stock Rights (No. 118 [2000] Promulgated by the State Taxation Administration) and under which the income or loss from the transfer of assets is temporarily not confirmed by the transferor, the cost for the transferee to acquire the transferor's assets may be determined pursuant to the value confirmed in the appraisal, and no tax payment adjustment is needed. (3) Where an enterprise buys back its own shares for the purpose of merger, the difference between the repurchasing price and the issuing price shall belong to increase or reduction of the enterprise's equity rather than the loss and gain from the transfer of assets, and shall not be deducted from the taxable income, nor be calculated into the taxable income. VII. Standard of Classification of Lease (1) An enterprise must, when handling taxation on the leased assets, correctly distinguish financial lease from operational lease. (2) The standard for distinguishing financial lease and operational lease shall be incompliance with the Enterprise Accounting Rules. VIII. Scope of Drawing Bad Debt Reserve Article 46 of the Measures on Pre-tax Deduction of Enterprise Income Tax (No. 84 [2000] Promulgated by the State Taxation Administration) provides that, an enterprise may draw 5бы of bad debt reserve for pre-tax deduction. For the sake of simplification, the scope for enterprises to draw bad debt reserve shall be incompliance with the Enterprise Accounting Rules. IX. The sales return of an enterprise may be used to set off the current sales income once the purchaser provides proper evidence on return of goods. X. For the lump-sum housing subsidies paid by an enterprise to the old employees who began to work before cessation of the practical housing distribution system but do not enjoy the welfare-oriented public housing distribution treatment, if the rates have not been prescribed by the people's government at the provincial level, they shall be determined through negotiation between the state taxation bureau and the local taxation bureau at the provincial level with reference to the rates prescribed by other provinces and the relevant departments. The rates of the overhead expenses paid by the enterprise to employees and associated with obtaining taxable income shall be determined through negotiation between the administration of state taxes or the administration of local taxes at the provincial level. XI. The present notice shall come into force on January 1, 2003. In case any previous policy is inconsistent with the present notice, the latter shall prevail. |
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