? According to the Notice of State Taxation Administration of The People's Republic of China on Pre-tax Deduction of Enterprise Income Tax on Interest Expenses of Enterprises Borrowing from Natural Persons (Guo [2009] No.777), the interest expenses of enterprises borrowing from shareholders or other natural persons related to enterprises should be based on the Enterprise Income Tax Law of People's Republic of China (PRC) and the Notice of People's Republic of China (PRC) State Taxation Administration of The People's Republic of China of the Ministry of Finance on Tax Policy Issues Concerning the Pre-tax Deduction Standard of Interest Expenses of Related Parties of Enterprises (Cai Shui [2008], that is, the proportion of creditor's rights investment and equity investment of related parties (financial enterprises) Interest expenses incurred by other enterprises when 2: 1) exceeds the prescribed standard shall not be deducted when calculating taxable income. However, if the relevant information can be provided in accordance with the relevant provisions of the Tax Law and its implementing regulations, and it is proved that the relevant trading activities conform to the principle of independent trading, or the actual tax burden of the enterprise is not higher than that of the domestic related parties, the interest expenses actually paid to the domestic related parties shall be deducted when calculating the taxable income. Interest expenses incurred by an enterprise in borrowing from internal employees or other personnel other than the above provisions, if the borrowing conditions meet the following conditions at the same time, and the interest expenses do not exceed the amount calculated according to the interest rate of similar loans of financial enterprises in the same period, shall be deducted: (1) The loan between enterprises and individuals is true, legal and effective, and there is no illegal fund-raising purpose or other illegal acts; (two) enterprises and individuals signed a loan contract. Xu
Profit = revenue-cost-expense, and interest is in the position of "expense" in this equation.
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