Announcement of the State Administration of Taxation on Issuing the Administrative Measures for Deduction of Asset Losses of Enterprises before Income Tax
Announcement of the State Administration of Taxation on Issuing the Administrative Measures for Deduction of Asset Losses of Enterprises before Income Tax
Announcement of the State Administration of Taxation on Issuing the Administrative Measures for Deduction of Asset Losses of Enterprises before Income Tax
Announcement of the State Administration of Taxation [2011] No. 25
March 31, 2011
Announcement of the State Administration of Taxation on Issuing the Measures for the Administration of Deduction of Asset Losses of Enterprises before Income Tax is hereby issued and shall come into effect as of January 1, 2011.
It is hereby announced.
Measures for the Administration of Deduction of Asset Losses of Enterprises before Income Tax
Chapter I General Provisions
Article 1 These Measures are formulated in accordance with the Enterprise Income Tax Law of the People's Republic of China (hereinafter referred to as the Enterprise Income Tax Law) and its implementing regulations, the Law of the People's Republic of China on the Administration of Tax Levying (hereinafter referred to as the Tax Collection and Administration Law) and its implementing rules, and the Circular of the Ministry of Finance and State Administration of Taxation on the Pre-tax Deduction Policies of Asset Losses of Enterprises (Cai Shui [2009] No. 57) (hereinafter referred to as the Circular).
Article 2 The term "assets" as used herein means assets owned by or under the control of an enterprise for operation and management, including monetary assets such as cash, bank deposits, accounts receivable and advance payments (including notes receivable, advances of all kinds, and current accounts between enterprises), non-monetary assets such as inventory, fixed assets, intangible assets, construction in progress, productive biological assets, as well as debt investments and equity investments.
Article 3 The phrase "asset losses permitted to be deducted prior to the payment of enterprise income tax" means reasonable losses incurred in the course of the actual disposal and transfer of the aforesaid assets (hereinafter referred to as actual asset losses), and losses calculated and confirmed in compliance with the requirements provided in the Circular and these Measure (hereinafter referred to as statutory asset losses) while the enterprise does not actually dispose of or transfer the aforesaid assets.
Article 4 The actual asset losses incurred by an enterprise shall be declared for deduction in the year when the losses actually occur and have been treated in the accounting as losses, while the statutory asset losses shall be declared for deduction in the year when the enterprise submits to the competent tax authority documents evidencing that the assets comply with the confirmation conditions for statutory assets and has treated in the accounting as losses.
Article 5 The asset losses incurred by an enterprise shall be deducted before tax after being declared with the competent tax authority in accordance with the prescribed procedures and requirements. Any losses which are not declared shall not be deducted before tax.
Article 6 Where asset losses incurred in previous years by an enterprise have not been deducted in the year when the losses occur, such enterprise may, subject to the provisions of these Measures, give an explanation to the tax authority and make special declaration for deduction. Among them, the actual asset losses are permitted to be retroactively recognized and deducted in the year which the losses occurred, the time limit for the recognition of which shall be no more than 5 years, but the time limit for asset losses left over during the transition of the planned economy system, asset losses which cannot be timely deducted in the course of reorganization and listing of the enterprise due to disputes arising out of unclear ownership, asset losses incurred due to the assumption of policy-based tasks, asset losses incurred due to unclear nature of the policy, or asset losses incurred due to other special reasons, may be appropriately extended upon the approval of the State Administration of Taxation . The statutory asset losses shall be deducted in the year when the losses are declared.
Tax overpaid by an enterprise as a result of a failure to deduct before tax its asset losses actually incurred in previous years may be deducted from tax payable in the year when the enterprise income tax is retroactively recognized. If the overpaid tax exceeds the tax payable, the remaining can be carried forward to the following year(s) for continuous deduction.
With regard to any deficit incurred after deduction of retroactively recognized losses in the year when the actual asset losses occur, the enterprise shall adjust the deficit in the year when the asset losses occur before calculating the overpaid enterprise income tax for the following years subject to the principles for making up deficit, and make tax treatment subject to provisions of the preceding paragraph.
Chapter II Administration of Declarations
Article 7 An enterprise may, in declaring settlement and payment of annual enterprise income tax, submit to the tax authority asset loss declaration documents and tax payment materials as the annex to the Annul Enterprise Income Tax Return.
Article 8 The asset losses of an enterprise can be divided into inventory declaration and special declaration, depending on the contents and requirements thereof. The asset losses falling into inventory declaration may be classified and consolidated subject to accounting items before being submitted to the tax authority, with relevant accounting materials and tax payment materials being retained for inspection, while, for the asset losses falling into special declaration, an application shall be submitted item by item, together with accounting materials and other relevant tax payment materials.
The tax authority may order an enterprise which fails to comply with the above-mentioned requirements when applying for pre-tax deduction of asset losses to make corrections. If the enterprise refuses to do so, the tax authority has the right to reject the application.
Article 9 The following asset losses shall be declared with the tax authority for deduction in the form of inventory declaration.
1. Losses incurred by selling, transferring or realizing non-monetary assets at a fair price in the normal operation and management course of an enterprise;
2. Asset losses incurred by an enterprise due to normal wear and tear of inventory;
3. Asset losses incurred by an enterprise due to normal abandonment and disposal of fixed assets reaching or exceeding the service life;
4. Asset losses incurred by an enterprise due to the normal death of productive biological assets reaching or exceeding the service life;
5. Losses incurred by an enterprise due to trading of bonds, shares, futures, funds, and financial derivatives etc. under the principle of fair dealing in the market through trading places and markets of all kinds.
Article 10 The asset losses other than those provided in the preceding Article shall be declared in the form of special declaration with the tax authority.
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