There are many kinds of compensation, including death compensation, disability compensation, traffic accident compensation, quality compensation and economic compensation. The so-called compensation refers to a certain amount of monetary funds paid by one party to the other party to make up for the deficiency of liquidated damages when its breach of contract causes losses to the other party. Compensation involves turnover tax, income tax and other taxes, and the relevant tax treatment is now analyzed as follows. Compensation is listed as extra-cost, and the calculation and collection of value-added tax is stipulated in Article 12 of the Detailed Rules for the Implementation of the Provisional Regulations of the People's Republic of China on Value-added Tax. The "out-of-price expenses" mentioned in the first paragraph of Article 6 of the Regulations include handling fees, subsidies, funds, collection fees, return profits, incentive fees, liquidated damages, late fees, deferred payment interest, compensation, collection funds, advance payment, packaging fees, packaging rent, etc. The detailed rules further clarify the content of extra expenses, separate the interest of deferred payment from liquidated damages, and increase the late payment fee and compensation. Here, the compensation is listed as an extra-cost, and the value-added tax is calculated, but it should be handled separately according to different situations. From the principle of revenue recognition of commodity sales, revenue can only be recognized if five conditions, such as the main risks and rewards of commodity ownership have been transferred to the buyer, are met at the same time. In other words, revenue can only be recognized when economic benefits are likely to flow in, resulting in an increase in assets or a decrease in liabilities of the enterprise, and the inflow of economic benefits can be reliably measured. Compensation is listed as extra-price expenses to collect value-added tax, and it must be obtained from the buyer in the form of extra-price collection while confirming the sales income, which is the basis for collecting value-added tax; If the income cannot be confirmed, the tax obligation will not be formed. At this time, the compensation charged by the seller to the buyer is not collected from the buyer in addition to the price, but is listed as non-operating income as a kind of compensation for breach of contract, and there is no need to pay VAT. Compensation is an extra charge, and business tax is calculated and levied. Article 13 of the Detailed Rules for the Implementation of the Provisional Regulations of the People's Republic of China on Business Tax stipulates that the out-of-price charges mentioned in Article 5 of the Regulations include handling fees, subsidies, funds, collection fees, return of profits, incentive fees, liquidated damages, late payment fees, deferred payment of interest, compensation, collection funds, prepaid funds, penalty interest and other out-of-price charges. When the taxpayer's turnover is compensation, it is classified as out-of-price charges, and the treatment of collecting business tax is the same as the above-mentioned VAT. The Notice of the Ministry of Finance of People's Republic of China (PRC), State Taxation Administration of The People's Republic of China, on Some Policy Issues Concerning Business Tax (Caishui [2003] 16) clearly states that when units and individuals provide taxable services, transfer intangible assets and sell real estate, the compensation income obtained from the transferee due to the transferee's breach of contract should be incorporated into the turnover to collect business tax. The "Provisional Regulations on Business Tax" and its detailed rules for implementation have absorbed the spirit of this provision, and clearly listed compensation as extra-price charges to calculate and collect business tax. As a matter of fact, State Taxation Administration of The People's Republic of China has given a clear answer to the question of levying business tax on compensation incorporated into turnover. For example, the Reply of State Taxation Administration of The People's Republic of China, People's Republic of China (PRC) on the Collection of Business Tax on Remuneration Obtained from Lease Business (Guo [2000] No.563) clearly pointed out in the Reply of Hebei Local Taxation Bureau on the Collection of Business Tax on Remuneration Obtained from Lease Hotel that after a certain unit or individual leased the hotel to another unit, the lessee failed to pay the rent as stipulated in the contract, resulting in economic disputes between the two parties, and the lessor obtained partial compensation through mediation by the people's court, because the compensation was obtained by the lessor from renting the hotel. According to the Provisional Regulations on Business Tax, the compensation obtained by the lessor shall be subject to business tax on the rental items in the labor tax. Compensation income obtained by individuals according to law shall be exempted from personal income tax. Whether to levy personal income tax on the income from remuneration obtained by individuals depends on the specific circumstances. Individuals who obtain compensation income from requisitioned houses are exempt from tax. The Official Reply of State Taxation Administration of The People's Republic of China City, People's Republic of China (PRC) on Exemption from Personal Income Tax for Individuals Obtaining Compensation Fees for Expropriated Houses (Guo [1998] No.428) stipulates that in the process of old city reconstruction, the compensation fees obtained by individuals for expropriation of houses, whether in cash or in kind (houses), are compensation income, which is exempted from personal income tax. Tax on the income of individuals from patent remuneration. The Reply of People's Republic of China (PRC) and State Taxation Administration of The People's Republic of China on the Collection of Individual Income Tax for Individuals Obtaining Patent Remuneration (Guo [2000] No.257) stipulates that individual patentees shall pay individual income tax in accordance with the Individual Income Tax Law of People's Republic of China (PRC) and its implementing regulations, and make it clear that the tax shall be withheld and remitted by the remunerated units. Personal income tax shall be levied on the income from termination of investment operation and compensation. According to the Announcement of State Taxation Administration of The People's Republic of China City, People's Republic of China (PRC) on Collecting Individual Income Tax from Individuals' Termination of Investment and Recovery of Funds (State Taxation Administration of The People's Republic of China Announcement No.41KLOC-0/), the income from equity transfer, liquidated damages, compensation and money recovered in other names obtained by individuals who terminate investment, joint ventures and business cooperation for various reasons belong to individual income tax. The calculation formula is: taxable income = the total amount of equity transfer income, liquidated damages, compensation and money recovered in other names obtained by individuals-the original actual investment amount (investment amount) and related taxes and fees. Income tax for breach of contract (compensation) The liquidated damages obtained by enterprises with different revenues and expenditures shall be treated as other income. Article 22 of the Regulations for the Implementation of the Enterprise Income Tax Law of People's Republic of China (PRC) stipulates that the term "other income" as mentioned in the tax law refers to other income obtained by an enterprise except items (1) to (8) of Article 6 of the Enterprise Income Tax Law, including excess income from enterprise assets, overdue packaged deposit income, accounts payable that cannot be repaid, accounts receivable recovered after bad debt losses are handled, debt restructuring income, etc. The income of liquidated damages here refers to the amount of compensation paid by one party to the other party when the contract is not fulfilled or the performance is not in conformity with the contract. According to Article 114 of the Contract Law, the parties may agree that one party shall pay a certain amount of liquidated damages to the other party in case of breach of contract, and may also agree on the calculation method of the amount of damages for breach of contract. The compensation obtained by the enterprise according to the contract shall be deducted from the corresponding property losses and included in the current profits and losses. According to the tax law, it is allowed to deduct the insurance premium paid by enterprises in property insurance. Property insurance means that the insured pays the insurance premium to the insurer according to the contract, and the insurer is liable for the property losses caused by the possible accidents agreed in the contract. The property insurance that an enterprise participates in is based on the property of the enterprise and its related interests, which can be divided into property loss insurance, liability insurance, credit insurance, etc. The purpose of enterprises participating in property insurance is to reduce or disperse the losses that their property may suffer, and in a sense, to increase the economic benefits that enterprises may obtain. Therefore, the insurance premium expenses incurred by enterprises participating in property insurance are related to the income obtained by enterprises, which conforms to the principle of authenticity of pre-tax deduction of enterprise income tax and should be deducted. In practice, insurance is only aimed at possible risks, but in fact, the insurance reasons stipulated in the insurance contract do not necessarily appear, that is, the subject matter insured by the enterprise has not caused any losses, but for the enterprise, its insurance premium expenditure cannot be recovered, which belongs to expenses and should be deducted before tax. It should be noted that when an insurance accident occurs in the commercial insurance that the enterprise participates in, the enterprise will get corresponding compensation according to the contract. At this time, it is still allowed to deduct the insurance premium expenses of the enterprise participating in commercial insurance. The compensation obtained should be deducted from the loss of the corresponding property when calculating the taxable income, and then the net loss of the property of the enterprise participating in commercial insurance is calculated and included in the current profit and loss. The liquidated damages (compensation) paid by the enterprise can be deducted before tax. Liquidated damages are a certain amount of money paid by the breaching party to the other party in advance when one party fails to perform the contract or fails to fully perform the contract. Liquidated damages are paid between enterprises in accordance with the provisions of economic contracts, which are not administrative fines and can be deducted before tax. Compensation is a certain amount of money paid by one party to the other party to make up for the deficiency of liquidated damages when its breach of contract causes losses to the other party. Compensation, like liquidated damages, can be deducted before tax.