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TAX & FINANCE: China Released the Administrative Measures for CIT Deduction Vouchers
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Is invoice King?
China Released the Administrative Measures for CIT Deduction Vouchers

BT 201808 Tax 01今年6月6日,国家税务总局发布了《企业所得税税前扣除凭证管理办法》及其官方解读,该《管理办法》对企业所得税扣除凭证管理的重要原则作出了进一步解释,并明确了内部外部凭证的分类及管理,解释了发票和扣除凭证的关系,还对无法获得外部凭证、共同支出分摊等特殊的情形凭证管理作出了规定。

自《企业所得税法》实施以来,仅对资产损失、固定资产加速折旧、研发费用加计扣除等特殊事项的凭证要求出台过《管理办法》,对于一般成本费用支出的扣除凭证并无统一清晰的要求,因此《管理办法》的出台可谓久旱逢甘霖 。其中具体内容要求纳税人和税务机关按照真实性、合法性、关联性这三个原则管理税前扣除凭证,需要注意的是,扣除凭证仅为税前扣除的必要非充分条件,持有扣除凭证仅需要满足企业所得税法规定的扣除范围和标准,才能够税前扣除。税前扣除凭证根据取得来源,可分为内部凭证和外部凭证;内部凭证是指企业资质用于成本费用损失和其他支出核算的会计原始凭证,其填制和使用应当符合国家会计法律法规等相关规定;而外部凭证是企业从其他单位个人取得的凭证,包括发票、财政票据、完税凭证、收款凭证、分割单等。在扣除凭证的取得时点方面,如果企业未能在汇算清缴期结束前取得发票或其他外部凭证,当年不应进行税前扣除。对于企业无法取得发票,或取得了不合规的发票凭证的情况,《管理办法》要求企业在汇算清缴结束前补开换开凭证。对于常见的多家企业在境内共同接受劳务的情况,《管理办法》明确规定,各方采取分摊方式的,分摊方以发票和分割单作为扣除凭证,被分摊方则以分摊方开具的分割单作扣除。

该办法将在7月1日起执行,具体规定宽严相济。建议企业对照《管理办法》梳理扣除凭证,评估其合规性,长远来看,企业可能需要调整内部财务税务的凭证管理制度,以适应《管理办法》的新要求。

On 6th June 2018, the State Administration of Taxation (SAT) released Administrative Measures for CIT Deduction Vouchers (the SAT Public Notice [2018] No.28, hereinafter referred to as the Administrative Measures) and its official interpretation. The Administrative Measures further specify the key principles in the administration of CIT deduction vouchers, clarify the classification and management of internal and external vouchers, explain the relationship between invoices and deduction vouchers, and regulate the administration on specific situations, such as being unable to obtain external vouchers, cost sharing, etc.
 

Administrative Measures shall take effect from 1st July 2018. It is recommended that enterprises should immediately sort out their CIT deduction vouchers and evaluate their compliance level by referring to Administrative Measures. From a long-term perspective, enterprises may need to adjust their internal management on fiscal and taxation vouchers to comply with the new requirements under the Administrative Measures.
 

Background

Under the Corporate Income Tax Law (CIT Law), an enterprise is allowed to deduct reasonable expenditures which have actually been incurred and are related to the generation of income. In this regard, authenticity is a primary criterion for CIT deduction. According to the interpretation of the CIT Law, in determining the authenticity of expenditures, enterprises shall provide “sufficient” and “appropriate” documents to substantiate these expenditures that have actually been incurred. However, since the implementation of the CIT Law, the SAT has only released administrative measures on vouchers relating to certain specific issues such as, asset loss, accelerated depreciation of fixed assets, super deduction of research and development expenditures, etc., but has not released anything on the requirements for CIT deduction vouchers relating to general costs and expenditures. Enterprises have been eagerly waiting for the release of such Administrative Measures for a long time.
 

Three Key Principles for the Administration of CIT Deduction Vouchers

As enterprises generally engage in various business activities and receive different types of vouchers, it is very difficult to list them out one by one. Administrative Measures require both taxpayers and tax authorities to manage CIT deduction vouchers based on the following three principles: authenticity, legality and relevance.
 

Among the above three principles, authenticity is fundamental. If an enterprise’s economic business activities and relevant expenditures are not authentic, it will naturally not be a CIT deduction issue. The other two principles namely legality and relevance are the core principles. Enterprises’ vouchers are allowed to be used as supporting documents for CIT deduction only when such vouchers are generated and used in compliance with the relevant laws and regulations, related to the enterprises’ corresponding expenditures and can be supported and proved with evidence.

Besides, it is noteworthy that the provision of deduction vouchers is only a “necessary but not the only condition” for CIT deduction. Enterprises with valid vouchers should still have to satisfy the relevant deduction scope and criteria prescribed in the CIT law before claiming a CIT deduction.
 

Invoices vs CIT Deduction Voucher vs Relevant Documents
Vouchers can be classified as internal and external according to their original source. In particular, internal vouchers refer to the original accounting vouchers for calculating cost, expenses, loss and other expenditures self-produced by enterprises, which shall be written and used in accordance with relevant accounting laws and regulations. External vouchers refer to vouchers that enterprises acquire from other units and individuals, which include invoices (i.e., paper invoices and e-invoices), fiscal vouchers, tax payment certificates, receipts and split payment vouchers, etc. We have summarised the voucher requirements for different types of expenditures in Appendix 1.
 

Obviously, invoice is one type of important external voucher, but it is not the only CIT deduction voucher. Under Administrative Measures, for VAT-able items where the counterparty has already performed the VAT registration, enterprises should use the VAT invoice as the CIT deduction voucher. However, it should be noted that VAT-exempt activities also belong to taxable items, as such, enterprises shall also require the counterparty to issue general VAT invoices for CIT deduction purpose. Non-compliant invoices such as forged ones, illegally acquired ones, falsified ones or improperly completed ones cannot be used for CIT deduction purpose. Unfortunately the Administrative Measures do not further specify the meaning of “properly completed”, hence, enterprises should refer to the relevant VAT and invoice administrative regulations in order to understand this term. For instance, the enterprise name, the taxpayer identification number and the unified social credit number should be accurately specified in the purchaser column of a general VAT invoice.
 

For non-VAT-able items, or VAT-able items of which the counterparty is not eligible to issue VAT invoices, other receipts or internal vouchers can be used for CIT deduction purpose. Furthermore, under the current VAT regulations, invoices are allowed to be issued for a few specified non-VAT-able items. As such, whether enterprises are allowed to use these invoices for CIT deduction purpose remains to be further clarified.
 

Meanwhile, to prove the authenticity of CIT deduction vouchers, the Administrative Measures also specify that enterprises should keep relevant supporting documents such as contracts and agreements, payment vouchers, receipts, etc. for tax authorities’ future examination. In the official interpretation, judicial adjudicative document issued by the court requiring an enterprise to pay compensation for the breach of contract is one kind of supporting document. Invoice for such kind of compensation generally cannot be obtained. Enterprises can therefore use external vouchers (e.g., receipts) together with the above mentioned related supporting document to claim a CIT deduction.
 

Timing for Obtaining CIT Deduction Vouchers

Administrative Measures reiterate that the timing for obtaining CIT deduction vouchers should be “before the end of CIT filing period”. If enterprises cannot obtain invoices or other external vouchers before the end of CIT filing period, they are not allowed to deduct such expenses in that year. When they are able to obtain such invoices or external vouchers in subsequent years, they are allowed to retrospectively deduct expenses in the year when these expenses are incurred. However, the retrospective period shall not exceed five years. This is consistent with the treatment on “deductible expenditures which should have been claimed but was not claimed in previous years” under the SAT Public Notice [2012] No.15.
 

Besides combining with the current administration thinking of optimising the business environment under the “Delegated Powers, Improved Regulation and Services” reform in China, the Administrative Measures allows enterprises to provide supplementary invoices, vouchers, or replace ineligible invoices, vouchers with eligible ones or provide interpretation documents within 60 days of being notified in situations where the tax authority discovers after the CIT filing period that the enterprise has claimed CIT deduction without obtaining valid deduction vouchers. In other words, the enterprise can still enjoy the CIT deduction if it can provide relevant CIT deduction vouchers within 60 days after receiving the notice from the tax authority. Otherwise, the enterprise will face the risk of being unable to deduct the expenses in the current year for CIT purpose. The attached Appendix 2 summarises the different time period for obtaining CIT deduction vouchers.
 

Enterprises Failing To Obtain Invoices Or External Vouchers Still Have Opportunity To Deduct Expenses For CIT Purpose!

There are certain circumstances where enterprises are unable to obtain invoices or have obtained non-compliant invoices and vouchers. Administrative Measures require enterprises to supplement invoices or replace non-compliant invoices or vouchers with compliant ones before the end of CIT filing period. If the invoices or vouchers cannot be supplemented or replaced by the counterparty because of certain special reasons, such as, it has been deregistered, terminated, its business license has been revoked or has been deemed as an unusual taxpayer by the tax authorities, the enterprise can still enjoy the CIT deduction treatment by providing supporting documents, such as, contracts or agreements, receipts, freight delivery documents, as well as accounting records, etc.. This new provision will help protect the CIT deduction for authentic transactions between enterprises.
 

Nevertheless, the Administrative Measures has not addressed how to claim a CIT deduction in case the invoice is lost. As a reference, the VAT regulation1 stipulates that when a special VAT invoice is lost, enterprises can still claim authentication input credit based on the copy of corresponding special VAT invoice (for book keeping purpose) provided by the seller.
 

Requirement on Vouchers for the Sharing Of the Common Expenditure

To address the scenario that services are jointly received by several enterprises (including related-party enterprises) in China, the Administrative Measures specify that in case the allocation method is adopted, the enterprise allocating the expenditures would claim the CIT deduction by providing invoices and split payment voucher, while the other enterprises receiving the allocated expenditures would claim the CIT deductions by providing the split payment vouchers issued by the enterprise allocating the expenditures. This allocation method allows all involved enterprises to enjoy the CIT deduction treatment. However, from a VAT perspective, as the allocated expenditures are not supported by VAT invoices, the enterprises receiving the allocated expenditures cannot claim any input VAT credit. On the other hand, the enterprise allocating the expenditures would be able to obtain special VAT invoices for the full amount of the expenditure but only receive a part of services. It is uncertain whether it can claim input VAT credit on the full amount.
 

In practice, a generally accepted method is for one party to issue invoices to the other party based on taxable activities. If the activity is regarded as a “purchase of a VAT-able activity and on sale to another party” activity, both parties can use the VAT invoice obtained to support the CIT deduction and input VAT credit. For the treatment on sharing of public service fees incurred by an enterprise on the leasing of a property, the Administrative Measures follow the above practical implementation, i.e., the enterprise (lessee) can claim a CIT deduction with the invoice issued by the lessor; meanwhile, if the above-mentioned cost allocation method is used, the lessee can also use other external vouchers issued by the lessor as CIT deduction vouchers.
 

The Takeaway

Administrative Measures set forth requirements for CIT deduction vouchers under various specific circumstances, which provide pro forma compliance guidance for taxpayers, and contribute to reducing their tax risks. However, there are still issues in the existing regulations on the CIT deduction that need to be further clarified. For example, how to distinguish an expense among the following expense category: advertising expense, business entertainment expense and sponsorship expense, whether depreciation expense of investment property can be claimed for CIT purpose, etc. Tax treatments for such issues need further clarification in practice.
 

As a whole, the Administrative Measures offer lenient and tightened treatments at the same time. For VAT taxable items, enterprises should still try their best to obtain VAT invoices to ensure successful CIT deductions. For situations where invoices cannot be obtained, enterprises should also sort out other supportive documents related to these expenditures and seek to claim CIT deductions according to special regulations.
 

In the long term, enterprises should also adjust their internal management on fiscal and taxation vouchers, perform a through verification on the vouchers so as to establish a solid foundation for CIT deduction.

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