Q:
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At present, what are the main provisions concerning the deduction of related party interest in corporate income tax regulations?
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A:
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The main provisions are as following:
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Article 41 and Article 46 of “the Enterprise Income Tax Law”;
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Article 38 and Article 119 of “the Implementation Regulations of the Enterprise Income Tax Law";
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"Notice of the Ministry of Finance and the State Administration of Taxation on Tax Policy Issues Related to the Standards for Pre-tax Deduction of Interest Expenses of Enterprise Related Parties" Caishui [2008] No. 121;
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"Implementation Measures for Special Tax Adjustment [Trial]" (hereinafter referred to as the Regulations) National Tax Issue [2009] 2 Chapter 9).
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Q:
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What does "interest expense" mean?
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A:
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The "interest expense" referred to here includes the interest, guarantee fee, mortgage fee and other interest-related expenses actually paid directly or indirectly related to the debt investment.
The “interest expenses of the enterprise in daily production and operation activities” mainly refer to the interest generated by the enterprise due to debts, and do not include the interest expenses such as guarantee fees and mortgage fees incurred due to borrowing.
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Q:
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What are the criteria allowed for deductions?
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A:
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According to the provisions of Caishui [2008] No. 121: in calculating the taxable income, the actual interest payment paid by the enterprise to the related parties shall not exceed the proportions stipulated below and the calculated portion of the relevant provisions of the tax law and its implementation regulations, deductions are allowed, and the excess shall not be deducted in the current and subsequent years.
In addition to meeting the provisions of Article 2 of this notice, the interest expenses actually paid by the enterprise to the related party shall be the ratio of the debt investment of the related party to its equity investment:
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For financial enterprises, 5:1;
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For other enterprises, 2:1.
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Q:
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What is the specific calculation method of debt-to-equity ratio?
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A:
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Related debt-to-equity ratio = sum of average related debt investment in each month of the year/sum of average equity investment in each month of the year. Among them:
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Monthly average related-party debt investment = (related-party debt investment at the beginning of the book balance + month-end closing balance)/2;
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Average equity investment of each month = (equity investment book balance at the beginning of the month + book balance at the end of the month)/2
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Q:
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How to determine the equity investment in tax?
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A:
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Equity investment is the amount of owner's equity listed on the company's balance sheet.
If the owner's equity is less than the sum of paid-in capital (share capital) and capital reserve, the equity investment is the sum of paid-in capital (share capital) and capital reserve; if the sum of paid-in capital (share capital) and capital reserve is less than the actual The amount of paid-in capital (share capital), then the equity investment is the amount of paid-in capital (share capital).
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