Payment To Overseas Related Parties: 9 Situations That Should Not Be Deducted Before Tax.

For enterprises to receive labor services to

The question of whether the payment of all kinds of expenses can be deducted before tax, the Announcement No. 16 seems to show 6 types in fourth, but there should be 9 kinds in fact.

The details are as follows: Fourth of the 16 circular stipulates that the expenses paid by the enterprises to the overseas related parties for accepting the following labor services shall not be deducted when calculating the taxable income of the enterprises.

1. labor activities not related to functional risk or business operation of enterprises;

2. party concerned directly or indirectly protects enterprises.

Investment interest, labor control activities such as control, management and supervision.

3. the labor service provided by the related party to the third party has already been purchased or has been carried out by itself.

4. although enterprises receive additional benefits due to affiliate to a group, they do not accept the specific labor activities carried out by the group in connection with the group.

5. labor activities that have been compensated in other related pactions;

6. other labor activities that do not bring direct or indirect economic benefits to enterprises.

In addition to the above 6 kinds of fees, there are 1 types of bulletins in 16, third, fifth and six respectively.

The expenses paid by enterprises to overseas related parties who fail to perform their functions, take risks and have no substantive business activities shall not be deducted when calculating the taxable income of enterprises.

An enterprise that pays a royalty to a related party who only has the legal ownership of intangible assets and does not contribute to its value creation, does not conform to the principle of independent paction, and shall not deduct when calculating the taxable income of an enterprise.

With the main purpose of financing and listing, an overseas company establishes a holding company or a Finance Companies outside the country, paying the collateral interest arising from the financing listing activities to the overseas related parties.

When calculating the taxable income of an enterprise, it is not allowed to deduct it.

The above categories of fees paid to overseas affiliates can not be deducted before tax, because these 9 types of fees violate the principles of relevance, authenticity, profitability or independent paction.

Although the 16 announcement only lists the 9 fees, there may be other non tax deductible cases in practice. It is suggested that the 4 basic principles be analyzed and judged, and the competent tax authorities should be asked to prevent unnecessary tax risks.

Article 1 of the 16 circular stipulates that, according to the forty-first article of the enterprise income tax law, the enterprise shall pay the expenses to the overseas related party, and shall comply with the principle of independent paction.

The seventh rule also stipulates that according to the 123rd provision of the enterprise income tax law, the payment of fees to the overseas related party does not conform to the principle of independent paction. The tax authorities may implement special tax adjustment within 10 years from the tax year that the business occurs.

The tax authorities shall manage the pfer pricing of enterprises' payment to overseas related parties. Except for the aforementioned disposal methods which are not allowed to deduct expenses before tax because of violation of the 4 principles, the tax authorities will carry out the tax adjustment in more cases for the expenses of violating the principle of independent paction.

Therefore, when the enterprises pay the expenses to the foreign parties in the future, they should strictly abide by the principle of independent paction and prevent the tax risk of the enterprises due to the special tax adjustment that the tax authorities may carry out.