Laws of the People's Republic of China
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The State Administration of Taxation
Circular of the State Administration of Taxation Concerning the Examination and Approval of the Pre-income-tax Deduction of Asset Loss of Enterprises with Foreign Investment
GuoShuiFa  No.46
March 13, 2000
Pursuant to the Law of the People's Republic of China on Income Tax of Enterprises with Foreign Invesment and Foreign Enterprises and the corresponding Detailed Measures for implementation as well as the Law of the People's Republic of China on the Administration of Taxation (Hereinafter referred to as Taxation Law) and the corresponding Detailed Measures for implementation, the relevant issues concerning the examination and approval of the deduction of asset losses prior to the levy of income tax for inventory shortages and destruction of fixed assets or flexible assets, losses arising from write-off and bad debt, and unusual loss caused by natural disaster, civil lawsuit and other unexpected accidents of enterprises with foreign investment hereinafter referred to as enterprises are stipulated as follows:
After examination and approval by competent taxation authorities, asset loss of enterprises may be deducted from the current calculation of enterprises' income tax. Without examination and approval by competent taxation authorities, asset losses shall not be deducted by enterprises before income tax collection.
After the occurrence of asset losses and the determination of their value, enterprises shall apply in writing to the competent local taxation authorities for the deduction of asset loss before the levy of income tax. The application shall set out the type, level, and period of deduction. The certificates of asset losses examined and approved by competent departments and authorities concerned and other related materials shall be attached to the application. After examination and approval by taxation authorities, deduction of approved losses from the current taxable income can be conducted.
If enterprises can verify that asset losses did have occurred but cannot confirm the amount of loss before the current report of taxable income, they can also apply to the local taxation authorities in accordance with the provision as mentioned in the previous paragraph. The deduction shall be conducted on the basis of the estimated amount examined and approved by taxation authorities. After loss amount has been confirmed, the difference between actual amount and estimated amount shall be adjusted concurrently.
In the event that enterprises have not reported promptly to the local taxation authorities about the asset loss pursuant to the stipulations of two preceding paragraphs on the condition that such failure to report has not outlasted the time limit as provided in Article 30 of the Law of the People's Republic of China on the Administration of Taxation, such losses may, after the examination and approval of the competent taxation authorities, be deducted from the current taxable income; if such failure has outlasted the time limit as stipulated in Article 30 of the Law of the People's Republic of China on the Administration of Taxation, local tax authorities shall not accept such applications.
If enterprises make a fraudulent reports, or report of any losses higher than the actual losses or deduct any asset losses before income tax is levied without approval, competent taxation authorities shall make adjustments and punish the enterprise according to Article 40 of the Law of the People's Republic of China on the Administration of Taxation.
For asset losses suffered by the institutions or business sites established by foreign enterprises within the territory of the People's Republic of China engaged in production, this Circular shall apply concerning taxation.
This Circular shall enter into force on April 1, 2000. Competent taxation authorities in all provinces, autonomous regions and municipalitie directly under the Central Government and cities directly under State planning may, pursuant to relevant laws, regulations and this Circular and taking the specific circumstances into account, formulate detailed measures for implementation regarding the time limit for application, procedure of examination and approval, power of examination and approval, and other related issues. The measures for examination and approval stipulated by the local taxation authorities before this Circular enter into force shall be amended perfected in accordance with this Circular commencing from April 1, 2000.