Implementation of the initiative to add deduction for R&D expenses

The new provisions on additional deduction for R&D expenses, which have been implemented since January 1, 2016, are cashed out in the 2016 annual enterprise income tax remittance as required. On the eve of the commencement of the remittance, the State Administration of Taxation (SAT) issued a circular to clarify the implementation caliber of the additional deduction for R&D expenses, and requested tax authorities at all levels to carry out multi-dimensional and multi-channel publicity, optimize tax services, and ensure that enterprises should enjoy the additional deduction for R&D expenses as much as possible. This year's remittance period to declare R & D expenses plus deduction, declaration procedures, the scope of deductions and other changes with previous years, enterprises need to pay attention to the policy implementation caliber, master the operation of the key points, in order to maximize the enjoyment of concessions, to avoid the risk. Significant benefits: clear multiple implementation caliber The State Administration of Taxation issued the "Notice on Further Improving the Implementation of the Policy of Pre-tax Deduction for Enterprise Research and Development Expenses" (Taxation General Letter [2016] No. 685), which requires that "the pre-tax deduction for research and development expenses should be done effectively in the enterprise income tax remittance of January 1~May 31, 2017. Preferential Policies Implementation". Document No. 685 of the Letter of the General Administration of Taxation [2016] is of great policy orientation for the implementation of the Circular of the Ministry of Finance, the State Administration of Taxation and the Ministry of Science and Technology on Improving the Policy of Extra Deduction of Research and Development Expenses before Tax (Cai Shui [2015] No. 119), which clarifies the caliber of the extra deduction policy implementation and facilitates the implementation of the enterprise's R&D activities. The policy guidance is significantly favorable Taxation letter [2016] No. 685 document in the policy implementation caliber guidance is obviously conducive to enterprises, especially highlighting the service function of the tax authorities, put forward "from now on to the entire period of enterprise income tax remittance, tax authorities at all levels should make full use of the official website, WeChat, microblogging, APP and other ways to carry out multi-dimensional, multi-channel publicity. The tax authorities at all levels should make full use of official websites, micro-letters, micro-blogs, APPs and other means to carry out multi-dimensional and multi-channel publicity and remind taxpayers to make timely declarations to enjoy the preferential policies on additional deduction. ", "We should give full play to the role of 123 66 Tax Service Hotline, unify the policy caliber, standardize the policy answers, and promptly answer questions and solve puzzles for enterprises", "If enterprises declare to enjoy the preferential policies on additional deduction, but the accounts and certificates are not sound, the information is incomplete, or the application of the preferential policies is inaccurate, the tax authorities at all levels will not be able to provide the necessary information for the enterprises. If an enterprise declares to enjoy the preferential policies on additional deduction, but the accounts and documents are not sound, the information is not complete, or the application of preferential policies is inaccurate, the tax authorities at all levels shall actively do a good job in counseling and explaining the work, and help the enterprise to establish accounts and supplement the information, so as to ensure that the enterprise enjoys the preferential policies on additional deduction. As a matter of fact, tax authorities, as tax enforcement agencies, should not only collect taxes according to the law, but also do a good job in publicizing and consulting on relevant tariff laws and regulations, which is also one of their functions. Article 7 of the Tax Administration Law clearly stipulates that "tax authorities shall widely publicize tax laws and administrative regulations, popularize tax knowledge, and provide tax consulting services for taxpayers without compensation." Document No. 685 of the General Taxation Letter [2016] highlights the government's service function and demonstrates the concept of tax administration in accordance with the law. Previous tax-related problems do not affect the additional deduction Document No. 685 of the Letter of the General Administration of Taxation [2016] clearly requires that "tax authorities at all levels should verify the relevant situation of enterprises enjoying preferential treatment in 2016 as the benchmark when implementing the preferential policies on additional deduction, and in principle, they will not verify the relevant situation in previous years. If tax-related problems existed or were found to exist in previous years, they should be dealt with separately in accordance with relevant regulations, and shall not affect the enterprises' enjoyment of the preferential policies on additional deduction for the year 2016". For enterprises' previous tax-related problems, they should be dealt with in strict accordance with the relevant provisions of the Tax Administration Law and other relevant regulations, and the main legal liabilities include: (1) payment of back taxes and late fees; and (2) suspected of tax evasion and avoidance, they should be penalized administratively and criminally in accordance with the provisions of the Tax Administration Law and the Criminal Law. Re-emphasize the "3-year" retroactive enjoyment period Cai Shui [2015] No. 119 document clearly stipulates that "enterprises in line with the provisions of this notice of the conditions for additional deduction of research and development costs in the January 1, 2016 and after the timely enjoyment of the tax incentives, you can retroactively enjoy and fulfill the filing procedures, the maximum retroactive period of 3 years, the maximum period of 3 years. The maximum period of retroactive enjoyment is 3 years"; Document No. 685 of the General Administration of Taxation [2016] re-emphasizes that "if an enterprise fails to timely file for enjoying the preferential policy of adding and deducting in 2016, it can enjoy it retroactively in the following 3 years". Tax letter [2016] No. 685 and Cai Shui [2015] No. 119 documents are not clear "not timely" specific identification standards, the actual reasons may be complex, including the subjective and objective reasons of the tax enterprises, the relevant third parties and external objective reasons, etc., how to define the follow-up practice needs to be clarified. Even if the caliber of application is loose, from the perspective of enterprise finance and cash management, it is more favorable to enjoy the tax incentives as early as possible, which is mainly manifested in: (1) reducing the occupation of funds and saving the pressure of cash flow; (2) guarding against potential tax disputes faced by the subsequent retrospective enjoyment of the tax enterprises, as well as the subsequent tax-related legal risks arising from the tax. Tax authorities should "solve" the enterprise's claims within 10 days The General Taxation Letter [2016] No. 685 provides that "taxpayers reflect the relevant problems and complaints, tax authorities at all levels should be resolved within 10 working days after receiving the problems and complaints". . Good levy-payment relations and high corporate tax compliance come from both a sound tax law, standardized law enforcement, and positive and effective interactions between tax enterprises. Article 8 of the Tax Administration Law stipulates that "taxpayers and withholding agents have the right to learn from the tax authorities about the provisions of the national tax laws and administrative regulations as well as the situation related to the tax payment procedures", and "taxpayers and withholding agents have the right to sue and report the illegal and disciplinary behaviors of the tax authorities and tax officials ". As to how to implement the above taxpayers' rights, the General Administration of Taxation Letter [2016] No. 685 document gives a more specific countermeasures, requiring resolution within 10 days. Of course, what constitutes "resolution" and how the standard is defined will become a potential point of contention in the subsequent implementation. Enterprises should improve the compliance of enjoying tax incentives The General Taxation Letter [2016] No. 685 document repeatedly emphasized that to do a good job in the "implementation" of the preferential policies of R & D expenses plus deduction, "strengthen supervision and inspection, and increase the implementation of the efforts". It should be noted that the tax letter [2016] No. 685 did not make new provisions on the entity and procedures for enjoying the deduction for research and development expenses, and should be strictly in accordance with the Cai Shui [2015] No. 119 document implementation. Although document CaiShui [2015] No. 119 reduces the audit procedure and expands the scope of expenses, it also stipulates that the tax authorities strengthen the preferential management of this preferential policy, and specifies that the annual verification surface shall not be less than 20%. Therefore, enterprises should enhance the awareness of risk prevention and improve the ability to resolve crises by improving the management of R&D projects, rationally and accurately collecting R&D expenses and setting up auxiliary accounts for R&D expenses. Innovative enterprises: four practical points Compared with the Notice of the State Administration of Taxation on the Issuance of Administrative Measures for Pre-tax Deduction of Research and Development Expenses of Enterprises (for Trial Implementation) (Guo Shui Fa [2008] No. 116) issued in 2008, Cai Shui [2015] No. 119 has made major adjustments, including the expansion of the scope of the benefit, simplification of the management of the collection of accounting and retrospective enjoyment, etc. Relevant innovative enterprises should pay attention to the following practical points. Relevant innovative enterprises should pay attention to the following practical operation suggestions in order to enjoy the policy convenience and reduce tax-related risks. Understand the declaration procedure, and fully prepare the filing and retention of backup information Article 13 of Document No. 116 of Guo Shui Fa [2008] stipulates that the competent tax authorities may request enterprises to provide the appraisal opinion of the governmental science and technology department if there is any disagreement with the R&D projects declared by the enterprises. According to this provision, the enterprise declaration of research and development costs plus deduction, need to be submitted to the Science and Technology Commission identification; after the Science and Technology Commission passes, the enterprise to submit information to the competent tax authorities to submit the audit; the audit passes, the deduction is granted, that is, the Science and Technology Commission identification is the antecedent and mandatory procedures. CaiShui [2015] No. 119 document Article 5, paragraph 3 provides that the tax authorities of the enterprise to enjoy the benefits of deduction of R & D projects have objections, you can refer to the municipal level (including) above the administrative department of science and technology to issue identification opinions, science and technology departments should respond to the comments in a timely manner. According to this provision, the appraisal by the Science and Technology Commission is no longer a pre-requisite link, and the declaration information will be submitted to the tax authorities directly by the enterprises, and the tax authorities with objections may refer to the science and technology departments of prefectural and municipal cities to issue appraisal opinions. Suggestion: According to Cai Shui [2015] No. 119, the declaration of additional deduction is no longer required to pass the appraisal of the Science and Technology Commission, which reduces the audit procedure, which is a great benefit for enterprises, but it also leads to many enterprises facing the confusion of not being sure whether the project can be subject to the additional deduction. Therefore, enterprises should standardize the management of R & D projects, by setting up a perfect project, budget, approval, final accounts of the R & D project for the whole process of management; to prepare a perfect record and retain the information for inspection. R & D costs plus deduction implementation of record management, according to the "State Administration of Taxation on the release of the" preferential policies for enterprise income tax matters to handle the announcement "(State Administration of Taxation Announcement No. 76 of 2015) of the provisions of the enterprise is required to prepare the information is organized as follows (see chart). Reasonable collection of personnel labor costs, the preparation of R & D staff time allocation table Cai Shui [2015] No. 119 document for personnel labor costs to abolish the "on-the-job" requirement, the labor costs of external R & D personnel can also be deducted, in line with the enterprise's requirements for R & D flexibility. Meanwhile, Article 6(3)(4) of the Announcement of the State Administration of Taxation on the Issues Relating to the Policy of Pre-tax Deduction of Research and Development Expenses of Enterprises (Announcement of the State Administration of Taxation No. 97 of 2015) specifies that the enterprises shall, no later than the time of the annual remittance tax return, submit the "Filing Form for Preferential Matters of Enterprise Income Tax" and the documents of the R&D projects to the tax authorities to complete the filing as well as the information retained for reference, which includes "engaging in R&D". In addition, the enterprise shall submit to the tax authorities, no later than at the time of the annual remittance tax return, the Filing Form of Enterprise Income Tax Preferences and the documentation of the R&D project for completion of the filing, as well as the information to be retained for inspection, including the "Explanation on the allocation of expenses for the personnel engaged in the R&D activities and the instruments, equipments, and intangible assets for R&D activities, including the records of the work utilization". The cost allocation statement can more accurately explain the process of generating personnel and labor costs in the R&D expenses of the enterprise, and facilitate the follow-up management of the tax authorities on the basis of adapting to the diversity of the R&D of the enterprise. Suggestions: 1. Improve the management of R&D personnel. Enterprises can set up a specialized R&D department according to the scale, or determine the members of the R&D project team, and keep the relevant approval and establishment documents for inspection. 2. Prepare a time allocation table for R&D personnel. (1) If the scientific and technological personnel involved in multiple projects at the same time in the R & D, should be involved in various projects based on the hours of work to prepare time allocation table, the R & D staff wages, salaries, etc., in accordance with the actual participation in the project hours reasonably allocated, and retain the time allocation table for inspection. (2) If the scientific and technological personnel are not exclusively engaged in research and development, but at the same time undertake the work of production or other positions, or the research and development cycle of a project is relatively short, should prepare a work hour allocation table, according to the scientific and technological personnel to actually engage in the research and development of the time each month summarized on a monthly basis, so as to reasonably attribute the part of the personnel labor costs. Strictly distinguish between production and R & D, the preparation of R & D collaterals, approval sheets and other auxiliary accounting Cai Shui [2015] No. 119 document to expand the scope of direct inputs, depreciation expenses, amortization of intangibles, the abolition of the "special" restrictions. However, at the same time, enterprises should separately account for research and development costs and production and operation costs, and accurately and reasonably summarize the costs and expenditures, and if the division is unclear, no deduction shall be applied. In practice, the tax authorities in the enterprise can add deductible expenses for verification, if the enterprise in the "direct inputs, depreciation" and other aspects of the cost is too high, especially occupy a high proportion of the total cost of materials and the total amount of depreciation, the enterprise will be required to issue a statement. Suggestion: Enterprises should strictly differentiate between production and R&D expenses in daily operation and management, and prepare material requisition and approval sheets for auxiliary accounting. Arbitrary allocation of R&D expenses is a common problem in enterprises, for example, depreciation expenses and long-term amortization expenses, amortization expenses of intangible assets, direct inputs, personnel labor and so on are all involved in such problems. If an enterprise simply approves a certain percentage as the allocation ratio without corresponding basis as support, it is difficult to pass the inspection, and the approval sheet set up can better explain the allocation ratio set up for R & D cost redistribution to provide strong data support. Establishment of auxiliary accounts for R&D expenses Cai Shui [2015] No. 119 changed from requiring enterprises to "implement special account management for research and development expenses" to "set up auxiliary accounts for R&D expenses enjoying additional deduction according to R&D projects", which reduces the accounting burden of enterprises. This has reduced the burden of accounting for enterprises, but it is a big challenge for enterprises that have not set up auxiliary accounts for R&D expenses. Suggestion: Establish the auxiliary account for R&D expenses. The annex to Cai Shui [2015] No. 119 contains a sample form of auxiliary account for enterprises' reference, and enterprises should set up auxiliary accounts for R&D expenses to keep for reference. The specific process includes: setting up the subjects and complete voucher system in line with the enterprise's own R&D needs → collecting original information (including R&D expense ledgers, valid vouchers related to R&D activities, etc.) → establishing R&D expense auxiliary accounts by project and year → comparing and verifying the valid vouchers and auxiliary accounts.

Article 12 of the Law of the People's Republic of China on Enterprise Income Tax In calculating taxable income, the amortization expenses of intangible assets calculated by enterprises in accordance with the regulations are allowed to be deducted. The following intangible assets shall not be deducted from the calculation of amortization expenses: (1) intangible assets whose self-development expenditures have been deducted in the calculation of taxable income; (2) self-created goodwill; (3) intangible assets unrelated to the business activities; (4) other intangible assets for which the deduction of amortization expenses shall not be calculated.