The reason for this is the following：
According to Article 10 of the Enterprise Income Tax Law, the following expenses shall not be deducted when calculating taxable income:
(a) dividends, bonuses and other equity investment income paid to investors;
(2) Enterprise income tax;
(3) Tax late fees;
(four) fines, fines and losses of confiscated property;
(5) Donation expenditures other than those specified in Article 9 of this Law;
(6) Sponsorship expenditure;
(7) Unapproved reserve expenditure;
(eight) other expenses unrelated to income.
According to the notes on the final settlement and payment of enterprise income tax in State Taxation Administration of The People's Republic of China No.63 of 20 14: Notes on the Detailed List of Tax Adjustment Items: Line 19: Loss of fines, fines and confiscated property: Line 1 "Account carrying amount" is filled in, excluding the losses of fines, fines and confiscated property included in the current profits and losses of taxpayers according to the provisions of economic contracts.
According to the above-mentioned documents, enterprises should make detailed judgments on fines and the business they should deal with. Specifically, they can be divided into two categories. One category is administrative fines, which are mostly based on national laws and administrative regulations and have strong legality and compulsion, such as fines imposed on enterprises by industrial and commercial registration departments, tax departments and public security departments. Such fines are non-deductible and need to be increased before enterprise income tax.
The other kind is operational fines, which mainly punish the breach of contract in the business activities of enterprises according to economic contracts or industry practices, such as liquidated damages, bank penalty interest, legal fees and so on. Such fines can be deducted and need not be increased before enterprise income tax.
That is, the liquidated damages of this contract can be deducted before enterprise income tax.