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[increase knowledge] do enterprises still need to pay tax for capital lending?This article takes you to avoid the pit

2021-09-28

In the daily business activities of enterprises, due to the shortage of funds, it often occurs that one enterprise borrows funds from another enterprise in order to maintain the capital turnover, and then repay the funds after the funds are rich.Well, today we will discuss the tax risk points that need to be paid attention to when we borrow funds between enterprises.


1、 Legal basis of loan contract


We must first consider the legitimacy of any economic behavior when we analyze it;Only when the legal requirements are met can we pay attention to the tax related issues, otherwise it is meaningless.


According to Article 11 of the provisions of the people's Court on Several Issues concerning the application of law in the trial of private lending cases, the private loan contracts concluded between legal persons, between unincorporated organizations and between them for the purpose of production and business operation shall, except for the circumstances specified in Article 52 of the contract law of the people's Republic of China and Article 14 of these provisions,If the parties claim that the private loan contract is valid, the people's court shall support it.


Therefore, the loan behavior between enterprises must meet the needs of production and operation.Only under this premise can the loan contract signed between enterprises be effective and protected by law.


2、 Does corporate capital lending generate value added tax


1. Do you need to pay VAT for the loan between enterprises and the interest income collected by the lender?

Answer: you need to declare and pay VAT according to "loan service".However, the borrower needs to pay special attention to that even if the special VAT invoice is obtained, the input tax can not be deducted.

Policy basis:

The notice of the Ministry of Finance and the State Administration of Taxation on comprehensively promoting the pilot project of replacing business tax with value-added tax (CS [2016] No. 36) Annex 1: Measures for the implementation of the pilot project of replacing business tax with value-added tax: loans refer to the business activities that obtain interest income by lending funds to others.

The notice of the Ministry of Finance and the State Administration of Taxation on comprehensively promoting the pilot project of replacing business tax with value-added tax (CS [2016] No. 36) Annex 2: Provisions on relevant matters in the pilot project of replacing business tax with value-added tax: if the original general VAT taxpayer purchases services, intangible assets or real estate, the input tax of the following items shall not be deducted from the output tax: (6)Purchased passenger transport services, loan services, catering services, residents' daily services and entertainment services.


2. If the enterprises sign a free fund loan contract, and the lender does not charge interest, do they still need to pay VAT?

Answer: Yes.Although the loan behavior is "free of charge", it needs to be taxed "as sales".

Policy basis:

Article 14 of Annex 1 implementation measures for the pilot project of replacing business tax with value added tax (CS [2016] No. 36) issued by the Ministry of Finance and the State Administration of Taxation: the following situations shall be deemed as sales services, intangible assets or real estate: (1) units or individual businesses provide services free of charge to other units or individuals,Except for those used for public welfare or for the public.


3. If it is the interest free loan between parent subsidiary companies or brother enterprises within the group, do you also need to pay VAT?

Answer: No.This is a tax preference and needs special treatment.

Policy basis:

Article 3 of the notice of the State Administration of Taxation of the Ministry of Finance on clarifying the policies of exempting pension institutions from VAT (CS [2019] No. 20): from February 1, 2019 to December 31, 2020, the enterprises within enterprise groups (including enterprise groups) shall be exempted from value-added tax.

Notice on extending the implementation period of some preferential tax policies (Announcement No. 6, 2021) issued by the State Administration of Taxation of the Ministry of Finance: the notice of the State Administration of Taxation of the Ministry of Finance on the deduction of relevant enterprise income tax policies for equipment and appliances (CS [2018] No. 54) and other 16 documents have expired,The implementation period will be extended to December 31, 2023, as shown in Annex 1.Annex 1 includes the notice of the Ministry of Finance and the State Administration of Taxation on clarifying the policy of exempting pension institutions from VAT (CS [2019] No. 20).


3、 Capital lending and enterprise income tax


1. Can the borrower deduct the interest expenses before tax for the loan between enterprises?

Answer: on the basis of obtaining the pre tax deduction certificate, the borrower can deduct the reasonable interest expenses before tax.

Policy basis:

Article 5 of the announcement of the State Administration of Taxation on Issuing the administrative measures for pre tax deduction voucher of enterprise income tax (Announcement No. 28 of 2018 of the State Administration of Taxation): the enterprise shall obtain the pre tax deduction voucher as the basis for deducting relevant expenses when calculating the taxable income of enterprise income tax.

Article 38 of the regulations on the implementation of the enterprise income tax law of the people's Republic of China (Order No. 714 of the State Council): the following interest expenses incurred by an enterprise in its production and operation activities are allowed to be deducted: (2) the part of the interest expenses of non-financial enterprises borrowing from non-financial enterprises shall not exceed the amount calculated according to the same loan interest rate of financial enterprises in the same period.


2. Are there any special requirements for the loan between affiliated enterprises?

Answer: if the capital lending of related parties does not conform to the principle of independent transaction, the tax authorities have the right to make adjustments.However, if the transaction itself does not reduce the overall tax revenue of the country, no special tax adjustment shall be made in principle.

Policy basis:

Article 41 of the enterprise income tax law of the people's Republic of China: if the business transactions between an enterprise and its affiliated parties do not conform to the principle of independent transaction and reduce the taxable income or income of the enterprise or its related parties, the tax authorities shall have the right to make adjustments according to reasonable methods.


Article 38 of the announcement of the State Administration of Taxation on Issuing the administrative measures for special tax investigation and adjustment and mutual consultation procedures (Announcement No. 6 of 2017 of the State Administration of Taxation): for transactions between domestic related parties with the same actual tax burden, as long as the transaction does not directly or indirectly lead to the reduction of the overall national tax revenue, no special tax adjustment shall be made in principle.


Have you all learned about the loan between enterprises and the possible tax risk points and solutions?More financial and tax contents are welcome to continue to pay attention to Huacai accounting.


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