- Major changes in debt restructuring
In 2019, the Ministry of Finance issued a newly revised debt restructuring guideline, which came into effect that year. The main changes are as follows
(1) Conceptual changes
Accounting standards: Debt restructuring refers to a transaction in which the creditor and debtor agree on the time, amount or method of repayment of debts without changing the counterparty. - 2019 Debt Restructuring Guidelines
Tax Law "Circular of the Ministry of Finance and the State Administration of Taxation on Several Issues Concerning the Treatment of Enterprise Income Tax in Enterprise Restructuring Business" (Cai Shui [2009] No. 59): Debt restructuring refers to matters in which a creditor makes concessions in accordance with the agreement reached between the debtor and the debtor or the ruling of the court in the event of financial difficulties of the debtor. - Same as the 2007 Debt Restructuring Guidelines
(2) Reorganization method:
Debt Restructuring Guidelines
1. The debtor settles the debt with assets;
2. The debtor converts the debt into an equity instrument;
3. In addition to Items 1 and 2 of this Article, modify other terms of claims and debts by adjusting the principal of debts, changing debt interest, changing repayment period, etc., to form restructuring claims and restructuring debts;
4. A combination of the above methods.
Cai Shui [2009] No. 59
- Non-monetary assets settle debts
- Debt-for-equity swaps
- Fiscal and tax treatment - non-monetary assets to settle debts
(1) General tax treatment
Company A sold a batch of products to Company B, with a receivable value of $2 million, a provision of $100,000 for bad debts, and a fair value of $1.8 million. Due to the difficulty of liquidity of Company B, after consultation between the two parties, Company A agreed that Company B should use an intangible asset to offset the arrears. The carrying balance of the intangible asset is $3 million, the cumulative amortization is $2 million, and the fair value is $1.5 million. Other relevant taxes are not considered.
1. Debtor Company B (heavy book value):
The difference between the carrying amount of the liquidated debt and the carrying amount of the transferred assets is recorded in other income - the gain on debt restructuring or investment income, and no distinction is made between gains or losses on the disposal of assets and gains or losses on the restructuring of accounts
Borrow: Accounts payable $2 million
Cumulative amortization of 2 million yuan
Credit: 3 million yuan for intangible assets
Other income 1 million yuan
2. Creditor Company A (heavy fair value):
The value of the assets exchanged is determined by the fair value of the waived claim (plus other costs and taxes directly attributable to the asset), and the difference between the fair value of the waived claim and the carrying amount is recorded in the investment income
Borrowing: 1.8 million yuan in intangible assets
Provision for bad debts $100,000
Credit: accounts receivable 2 million yuan
Investment income -100,000 yuan
3. Income tax:
The lead party of the restructuring: the debtor, who took the lead in submitting the "Report Form and Schedule on Tax Treatment of Special Income Tax of Enterprise Restructuring" and the declaration materials
Policy Basis:
Announcement of the State Administration of Taxation on the Treatment of Enterprise Income Tax on Income Tax Derived from the Transfer of Property Acquired by Enterprises, SAT Announcement No. 19 of 2010:
Unless otherwise specified, the income from the transfer of property (including various assets, equity, creditors, etc.) acquired by an enterprise, income from debt restructuring, income from receiving donations, income from unpayable payables, etc., whether embodied in monetary or non-monetary form, shall be included in the annual calculation and payment of enterprise income tax in a lump sum when the revenue is recognized.
Relevant provisions of corporate income tax: non-cash assets acquired through donations, investments, non-monetary asset exchanges, debt restructuring, etc. are taxed on the basis of the fair value of the assets and the relevant taxes paid;
Notice of the State Administration of Taxation of the Ministry of Finance on Several Issues Concerning the Treatment of Enterprise Income Tax in Enterprise Restructuring Business, Cai Shui [2009] No. 59
For corporate debt restructuring, relevant transactions should be handled in accordance with the following provisions:
1. The settlement of debts with non-monetary assets shall be broken down into two operations: the transfer of relevant non-monetary assets and the settlement of debts at the fair value of non-monetary assets, and the gain or loss of relevant assets shall be recognized.
2. In the event of a debt-to-equity swap, it shall be divided into two businesses, debt settlement and equity investment, and the gains or losses of the relevant debt settlement shall be recognized.
3. The debtor shall recognize the income from debt restructuring according to the difference between the debt settlement paid and the tax basis of the debt; The creditor should recognize the debt restructuring loss according to the difference between the debt settlement received and the tax basis of the claim.
4. In principle, the relevant income tax matters of the debtor remain unchanged.
Debtor: 1 million yuan of taxable income recorded in the current period, of which 500,000 yuan (150-100) of income from the transfer of intangible assets; Debt restructuring proceeds of $500,000 (200-150)
Income from the transfer of intangible assets: Filling in the "Detailed Table of Tax Adjustments for Specific Business of Deemed Sales and Real Estate Development Enterprises" is regarded as an increase of 1.5 million yuan in sales income; The deemed cost of sales is 1 million yuan, and the income is reduced by 1 million yuan
Income from debt restructuring: Fill in the "Detailed Table of Tax Adjustments for Enterprise Restructuring and Deferred Tax Matters" with an amount of 1 million yuan, a tax amount of 500,000 yuan, and a reduction income of 500,000 yuan.
Or fill in the form below
| Schedule of Tax Adjustments for Corporate Restructuring and Deferred Matters (A105100) | |||
| Number of rows | project | General tax treatment | |
| Billed amounts | Tax amount | Tax adjustment amount | |
| 1 | 2 | 3（2－1） | |
| 1 | 1. Debt restructuring | ||
| 2 | Among them: the settlement of debts with non-monetary assets | 100 | 100 |
Creditor:
The carrying value of intangible assets was $1.8 million, and the carrying loss of debt restructuring accounting was $100,000.
The taxable basis of intangible assets is 1.5 million yuan, the taxable loss of debt restructuring is 500,000 yuan, and the taxable income needs to be reduced by 400,000 yuan
(The actual loss of credit impairment was 100,000 yuan; $300,000 difference between the fair value of the renunciation of claims and the fair value of the acquired assets)
Assuming that the company's normal operating income is 1 million yuan, investment income - debt restructuring - 100,000 yuan, total profit is 900,000 yuan, the income should be reduced by 400,000 yuan, and the actual taxable income is 500,000 yuan
| Schedule of pre-tax deductions and tax adjustments for asset losses (A105090) | ||||||||
| Number of rows | project | Asset losses are directly included in the amount of profit or loss for the year | Amount written off from the provision for asset losses | Income from asset disposal | indemnify revenue | Tax basis for assets | The amount of tax on asset losses | Tax adjustment amount |
| 1 | 2 | 3 | 4 | 5 | 6 （5-3-4） | 7 | ||
| 2 | 2. Bad debt losses on receivables and advances | |||||||
| 3 | Among them: loss of receivables that are more than three years overdue | 10 | 10 | 150 | 200 | 50 | -40 |
Or (this form is recommended)
| Schedule of Tax Adjustments for Corporate Restructuring and Deferred Matters (A105100) | ||||
| Number of rows | project | General tax treatment | ||
| Billed amounts | Tax amount | Tax adjustment amount | ||
| 1 | 2 | 3（2－1） | ||
| 1 | 1. Debt restructuring | |||
| 2 | Among them: the settlement of debts with non-monetary assets | -10 | -50 | -40 |
or a credit impairment loss of 100,000 yuan in the current year, and the actual loss occurs in the current year, the company's normal operating income is 1 million yuan, the credit impairment loss is 100,000 yuan, the investment income - debt restructuring - 100,000 yuan, the total profit is 800,000 yuan, and the income should be reduced by 300,000 yuan:
| Schedule of Tax Adjustments for Corporate Restructuring and Deferred Matters (A105100) | ||||
| Number of rows | project | General tax treatment | ||
| Billed amounts | Tax amount | Tax adjustment amount | ||
| 1 | 2 | 3（2－1） | ||
| 1 | 1. Debt restructuring | |||
| 2 | Among them: the settlement of debts with non-monetary assets | -10 | -50 | -40 |
In addition, it is necessary to consider the issue of the recorded value of intangible assets, the tax basis of intangible assets is 1.5 million yuan, and the current book value is 1.8 million yuan, a difference of 300,000 yuan, which means that the accounting cost of amortization expenses of the intangible asset in the later period is greater than the tax cost, and the income needs to be increased. Assuming that the intangible asset can be used for five years, Company A needs to make the following tax adjustments:
Debit: Income Tax Expense - Deferral 7.5 (30*25%)
Credit: Deferred tax liability 7.5
Later annually
Debit: Income Tax Expense - Deferred -1.5
Debit: Deferred tax liability 1.5
- Special tax treatment
Notice of the Ministry of Finance and the State Administration of Taxation on Several Issues Concerning the Treatment of Enterprise Income Tax in Enterprise Restructuring Business
Cai Shui [2009] No. 59:
If an enterprise reorganization meets the following conditions at the same time, special tax treatment provisions apply:
(1) Have a reasonable commercial purpose, and the main purpose is not to reduce, exempt or postpone the payment of taxes.
(2) The proportion of assets or equity of the acquired, merged or spun off part complies with the proportion specified in this notice.
(3) The original substantive business activities of the restructured assets shall not be changed within 12 consecutive months after the reorganization of the enterprise.
(4) The amount of equity payment involved in the consideration for the restructuring transaction complies with the proportion specified in this notice.
(5) The original major shareholder who obtained equity payment in the course of enterprise restructuring shall not transfer the equity acquired within 12 consecutive months after the reorganization.
If an enterprise restructuring meets the conditions stipulated in Article 5 of this Notice, the parties to the transaction may carry out special tax treatment for the equity payment part of the transaction in accordance with the following provisions:
(1) The taxable income recognized by the debt restructuring of an enterprise accounts for more than 50% of the taxable income of the enterprise in the current year, and may be evenly included in the taxable income of each year within the period of five tax years.
Assuming that the annual taxable income of the company is RMB800,000 and the income from debt restructuring is RMB500,000, accounting for 62.5%, special tax treatment may apply, and the income from debt restructuring of RMB500,000 can be included in the taxable income in 5 years.
| Schedule of Tax Adjustments for Corporate Restructuring and Deferred Matters (A105100) | ||||
| Number of rows | project | Special tax treatment | ||
| Billed amounts | Tax amount | Tax adjustment amount | ||
| 1 | 2 | 3（2－1） | ||
| 1 | 1. Debt restructuring | |||
| 2 | Among them: the settlement of debts with non-monetary assets | 100 | 60 | -40 |