Administrative Measures for the Pre-tax Deduction of Enterprise Property Losses from Taxable Income
Administrative Measures for the Pre-tax Deduction of Enterprise Property Losses from Taxable Income
Administrative Measures for the Pre-tax Deduction of Enterprise Property Losses from Taxable Income
Order of the State Administration of Taxation [2005] No. 13
August 9, 2005
The Administrative Measures for the Pre-tax Deduction of Enterprise Property Losses from Taxable Income, which, following deliberation, were adopted at the fourth executive meeting of the State Administration of Taxation on June 3, 2005, are hereby issued and shall come into effect as of September 1, 2005.
Xie Xuren, Director-General of the State Administration of Taxation
Attached:Administrative Measures for the Pre-tax Deduction of Enterprise Property Losses from Taxable Income
Chapter I General Provisions
Article 1 With a view to further regulating and improving the administration of pre-income-tax deductions made for enterprise property losses and promoting the more detailed administration of enterprise income taxes, these Measures have been formulated in accordance with the relevant provisions of the Law of the People's Republic of China on the Administration of Tax Levying and the detailed rules for the implementation thereof, and the Interim Regulations of the People's Republic of China on Enterprise Income Tax and the detailed rules for the implementation thereof.
Article 2 The term "property" as used in these Measures refers to assets owned or controlled by enterprises that are used in their business operations and management activities and relate to the earning of taxable income, including cash, bank deposits, accounts receivable and prepayments (including notes receivable), inventories, investments (including loan arrangements and funds under management), fixed assets, intangible assets (excluding goodwill) and other assets.
Article 3 The various property losses of an enterprise can be classified, according to the nature of the property concerned, into losses of financial capital, losses from the recognition of bad or doubtful debts, inventory losses, losses from the transfer or liquidation of investments, fixed asset losses, losses from construction projects in progress and the construction materials thereof, intangible asset losses and losses on other assets; or be classified, according to the declaration procedures for deductions, into property losses for which a deduction is claimed by the enterprise itself or property losses for which a deduction is allowed following examination and approval; or be classified, according to the cause of the loss, into normal losses (including normal transactions, the disposal of unusable property, and liquidation), abnormal losses (including losses resulting from force majeure, such as war or a natural disaster, losses resulting from damage or theft due to poor management, and losses attributable to policy factors, etc.), appraised losses resulting from reorganizations, and permanent and substantial damage.
Article 4 Any property loss incurred by an enterprise shall be deducted in the year in which the loss occurs, and may not be deducted in advance or carried forward. Where an enterprise fails to declare a property loss in the relevant period for any reason other than a calculation error or on other objective grounds, the loss may not be deducted at any future point in time. Where the examination and approval of the competent taxation authority is required under these Measures, declarations shall be made promptly in accordance with the prescribed timetable and procedures. Where, due to any reason attributable to the taxation authority, a property loss is not deducted in the appropriate period, subject to the approval of the competent taxation authority, the tax return for the year in which the property loss occurs shall be adjusted and taxable income shall be recalculated. Where the adjusted taxable income is lower than that prior to the adjustment, the tax overpayment made in the year in which the property loss occurs shall either be refunded or may be offset against tax arrears or tax payable in the following period in accordance with relevant provisions, provided that the tax year in which the property loss is incurred does not change.
Article 5 Where a property loss incurred by an enterprise has been declared and deducted and has subsequently been recovered or compensated for, the amount recovered or compensated for shall be included in the enterprise's taxable income for the year in which the loss is recovered or compensation is actually paid. Where, because of a creditor's circumstances, accounts receivable cannot be recovered, including any account receivable that remains unpaid for three years or more, provided the creditor has recognized the accounts receivable as a loss and has made a pre-income-tax deduction in accordance with these Measures, they shall be included in the creditor's taxable income for the current period and corresponding enterprise income tax shall be paid.
Chapter II Examination and Approval of Pre-tax Deductions for Property Losses
Article 6 Property losses resulting from assets sold, transferred or realized in the course of the business operations and management activities of an enterprise, normal inventory losses and the abandonment of any type of inventory, and property losses resulting from the normal liquidation of fixed assets after they have reached or outlived their usable lifetimes, shall be declared and deducted in the period in which the abovementioned losses actually occur.
Article 7 Where, for any property loss incurred by an enterprise that results from any of the following causes, the enterprise seeks to claim a deduction when it makes its enterprise income tax declaration, the deduction shall be subject to examination and approval by the competent taxation authority:
1. Any loss of cash, bank deposits, inventories, short-term investments or fixed assets caused by force majeure, such as a natural disaster or war, or from poor management;
2. Any loss from the recognition of accounts receivable or prepayments as doubtful debts;
3. Any loss from the recognition of a financial enterprise's bad debts;
4. Any property loss recognized due to permanent or substantial damage to inventories, fixed assets, intangible assets or long-term investments;
5. Any investment loss resulting from the dissolution or liquidation of an investee party;
6. Any loss resulting from the appraisal of any asset that can be deducted on a pre-tax basis in accordance with applicable regulations;
7. Any property loss resulting from relocation or expropriation in accordance with government plans; or
8. Any loss resulting from direct loans made other than in the course of credit activities between enterprises permitted by the state.
Article 8 Pre-income-tax deductions for property losses claimed by enterprises shall be subject to examination and approval to determine whether or not declaration materials provided by taxpayers in accordance with the applicable provisions conform to the statutory criteria. Where it is necessary for the taxation authority responsible for examination and approval to verify the contents of declaration materials, the taxation authority responsible for examination and approval shall designate two or more functionaries to verify the relevant matters. Where, in view of the large volume of property losses or the lack of extrinsic legal evidence, its site inspection workload is heavy or time-consuming, it may entrust the taxation authority at the county (district) level where the enterprise is located to arrange for such matters to be verified. Taxation authorities may check the authenticity of any purported approval for a pre-income-tax deduction for a property loss.
Article 9 As a general rule, the competent taxation authority at the county (district) level where the enterprise is located shall be responsible for pre-income-tax deductions for property losses made by an enterprise. The taxation authorities of all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan (hereinafter referred to as provincial taxation authorities) may, on the basis of the amount of any property loss, split responsibility for examination and approval as appropriate. Any property loss resulting from relocation or expropriation in accordance with government plans shall be subject to the examination and approval of the taxation authority immediately superior to the taxation authority where the said government is located.
Article 10 No pre-income-tax deduction claimed for a property loss incurred by an enterprise shall be passed on to a different level for approval. The enterprise may file an application with the competent taxation authority at the county (district) level 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 With the exception of hearings and public announcements, the acceptance, examination and approval of any application for a pre-income-tax deduction for a property loss incurred by an enterprise shall be carried out by taxation authorities at all levels in accordance with the relevant provisions of the Circular of the State Administration of Taxation on Several Issues Concerning the Implementation of Administrative Licensing of Tax (Guo Shui Fa [2004] No.
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