Global Tax Alert | 20 March 2014

Securing taxable deductions for Chinese corporate income tax return purposes

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The deadline to file a 2013 Chinese corporate income tax return is 31 May 2014. Certain deductions and/or favorable tax treatments, however, require proper advance filings or pre-approvals before the return can be finalized. Failure to comply with the required procedures may result in denial of anticipated deductions or disallowance of favorable treatment. This Alert describes required compliance procedures relevant to deductions of asset impairment loss and the research and development (R&D) super deduction.

Deduction of asset impairment losses

Taxpayers are required to submit documentation on the incurred asset impairment losses to a local tax bureau in order to claim the deduction on the corporate income tax return. For the advance filing purpose, only a list of the impaired asset losses is required to be submitted to the tax bureau for certain prescribed impaired asset losses.1 Financial records and other supporting documents are required for losses from other asset impairment.2

R&D super deduction

Companies may claim an additional deduction of 50% of qualified R&D expenses. To qualify for this deduction, companies must file the supporting documents with the local tax bureau. A filing due date varies depending on local tax bureaus. In addition, a tax bureau may require a company to submit a special purpose audit report issued by an accounting or tax firm and an opinion letter issued by the Science and Technology Bureau to confirm validity of claimed R&D projects.

Endnotes

1. Losses incurred by sale, transfer or realization of non-monetary assets at a fair market value in the normal course of operation; losses incurred from devaluation of inventory; losses incurred from abandonment and disposal of fixed assets reaching or exceeding useful life; losses incurred on assets used in forestry, agricultural, and farming businesses reaching or exceeding useful life; losses incurred due to trading of bonds, shares, futures, funds, and financial derivatives etc. through stock exchanges.

2. Monetary losses include cash and bank deposit, as well as accounts receivable and advance payment write-offs; non-monetary losses cover inventory, tangible and intangible assets, construction in progress, and assets used in forestry, agricultural and farming businesses; investment losses refer to investments in the form of debt and equity and other assets losses.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong
  • Jane Hui
    +852 2629 3836
    jane.hui@hk.ey.com
  • Becky Lai
    +852 2629 3188
    becky.lai@hk.ey.com
  • Clement Yuen
    +852 2629 3355
    clement.yuen@hk.ey.com
Ernst & Young Tax Services Limited, China
  • Walter Tong
    +86 21 2228 6888
    walter.tong@cn.ey.com
  • Henry Chan
    +86 10 5815 3397
    henry.chan@cn.ey.com
  • Andrew Choy
    +86 10 5815 3230
    andrew.choy@cn.ey.com
  • Vickie Tan
    +86 21 2228 2648
    vickie.tan@cn.ey.com
Ernst & Young LLP, China Desk, New York
  • Min Fei
    +1 212 773 5622
    min.fei@ey.com
  • Susan Qiu
    +1 212 773 9382
    susan.qiu@ey.com
  • Vickie Lin
    +1 212 773 6001
    vickie.lin@ey.com
  • Jessia Sun
    +1 212 773 5955
    jessia.sun@ey.com
Ernst & Young LLP, China Desk, San Jose
  • Diana Wu
    +1 408 947 6873
    diana.wu@ey.com
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
    chris.finnerty@ey.com
  • Kaz Parsch
    +1 212 773 7201
    kazuyo.parsch@ey.com
  • Bee-Khun Yap
    +1 212 773 1816
    bee-khun.yap@ey.com

EYG no. CM4279