SAT Clarifies Offset of Accumulative Losses after Cancellation of Consolidated CIT Payments

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Aug. 31 – The State Administration of Taxation recently released a notice regarding the handling of corporate income tax on the accumulative loss of the previous years after the cancellation of consolidated payments, effective from January 1, 2009.

According to the notice, after canceling consolidated payments of CIT, a corporate group is allowed to allocate the accumulative loss until the end of 2008, which falls into the five-year carry-forward time-limit as stipulated by Article 18 of the CIT law.

The corporate group shall allocate the loss to the affiliated company, which will record the loss according to the corresponding allocation formula.

During the allocation, the corporate group shall also determine the specific year of the distributed loss and remaining carry-over period.

After the allocation, the corporate group will be required to record the accumulative loss, release the record to its affiliated companies, and send a copy to the corporate group’s tax authorities. The time limit of allocated losses will be based on the year of consolidated tax filing when the losses occurred.

For more information or advice on China’s tax regime, please contact Dezan Shira & Associates at