The Notice of the Ministry of Finance, State Taxation Administration of The People's Republic of China, on Tax Policy Issues Concerning Pre-tax Deduction Standard for Interest Expenses of Related Parties of Enterprises (Caishui [2008] 12 1No.) stipulates that,
1. When calculating the taxable income, if the interest expenses actually paid by the enterprise to related parties do not exceed the following proportion and the relevant provisions of the tax law and its implementing regulations, they shall be deducted, and the excess shall not be deducted in the current year and subsequent years. The interest expenses actually paid by the enterprise to related parties shall be the proportion of creditor's rights investment and equity investment of related parties, in addition to complying with the provisions of Article 2 of this Notice:
(1) Financial enterprises, 5:1;
(2) Other enterprises, 2: 1.
2. Whether the enterprise can provide relevant information in accordance with the relevant provisions of the tax law and its implementing regulations to prove that the relevant trading activities conform to the principle of independent trading; Or if the actual tax burden of the enterprise is not higher than that of the domestic related party, the interest expenses actually paid to the domestic related party shall be deducted when calculating the taxable income.
NPC Standing Committee's Revision
According to the Announcement of People's Republic of China (PRC) and State Taxation Administration of The People's Republic of China on Several Issues Concerning Enterprise Income Tax (Announcement No.201KLOC-0/No.34 of People's Republic of China (PRC) State Taxation Administration of The People's Republic of China),
1. On the determination of the interest rate of similar loans of financial enterprises in the same period According to the provisions of Article 38 of the Implementation Regulations, the part of interest expenses borrowed by non-financial enterprises from non-financial enterprises that does not exceed the amount calculated according to the interest rate of similar loans of financial enterprises in the same period is allowed to be deducted before tax. "Interest rate of similar loans in the same period" refers to the interest rate of loans provided by financial enterprises under the condition that the loan term, loan amount, loan guarantee and corporate reputation are basically the same. It can be the average interest rate of the same kind announced by financial enterprises in the same period, or the actual loan interest rate provided by financial enterprises to some enterprises.
The "Regulations on the Implementation of the Enterprise Income Tax Law of People's Republic of China (PRC)" (the State Council Order No.512 of the People's Republic of China) stipulates that the interest income mentioned in Item (5) of Article 6 of the Enterprise Income Tax Law refers to the income obtained by an enterprise that provides funds to others for use, but does not constitute equity investment, or because others occupy their own funds, including deposit interest, loan interest and bond interest. …… Article 38 The following interest expenses incurred by an enterprise in its production and business activities are allowed to be deducted:
(1) Interest expenses incurred by non-financial enterprises in borrowing from financial enterprises, interest expenses incurred by various deposits and interbank lending of financial enterprises, and interest expenses incurred by enterprises in issuing bonds upon approval;
(two) the interest expenses of non-financial enterprises borrowing from non-financial enterprises shall not exceed the amount calculated according to the interest rate of similar loans of financial enterprises in the same period. ..... Article 109 ... Related parties refer to enterprises, other organizations or individuals that have one of the following related relationships with enterprises:
(a) there is a direct or indirect control relationship in capital, operation, purchase and sale, etc. ;
(2) Being directly or indirectly controlled by a third party;
(three) there are other interests. ..... Article 110 The principle of independent transaction mentioned in Article 41 of the Enterprise Income Tax Law refers to the principle that unrelated parties conduct transactions according to fair transaction prices and commercial practices.