New administration of CIT preferential treatments: simplifying record-filing procedures and shifting the focus to post-filing supervision
In response to the State Council's pursuit in removing or delegating approval on administrative matters, the State Administration of Taxation (SAT) has been streamlining its tax-related administrative approval system, especially on administration of tax reduction and tax exemption. The Administration Measures for Tax Reduction and Exemption issued in June is the first effort taken by the SAT in this exercise. As a continuous effort, recently the SAT released the Administrative Measures for Corporate Income Tax (CIT) Preferential Treatments (the Measures), providing detailed guidance on the administration of CIT preferential treatments.
The Measures simplifies the procedure for claiming CIT preferential treatments. An enterprise now is only required to perform a self-assessment on its eligibility for CIT preferential treatments and file a record with tax authorities. The Measures also includes a 'Catalogue of CIT Preferential Treatments for Record-filing Administration' (the Catalogue) clarifying the CIT preferential treatments that an enterprise could enjoy in its provisional CIT filing or in its annual CIT filing. Furthermore, the documents that are required to be submitted for record-filing purpose are substantially reduced. The initiatives introduced by the Measures will ease enterprises' burden in tax filing and boost their cash flow by bringing forward the timing of most CIT preferential treatments to the provisional CIT filing.
Nevertheless, it should be noted that the simplified record-filing procedure does not mean that tax authorities will loosen their control on CIT preferential treatments. On the contrary, the Measures requires taxpayers to prepare and retain sufficient documents to justify their filing position, and tax authorities will adopt various methods at the post-filing stage, including tax risk management, tax audit and tax assessment, to administer eligibility for the CIT preferential treatments. Enterprises are suggested to update their internal tax risk control system in accordance with the Measures, including enhancing their internal tax review and documentation procedure.
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