How to Repair Bad Tax Credit?

On 1 January 2022, the Announcement on Matters Relating to Tax Credit Evaluation and Repair [1](No. 31 of 2021) issued by the State Administration of Taxation (SAT) came into effect. The announcement has added provisions on tax credit repair for serious discreditable behaviors and bankruptcy reorganization enterprises.

 

Under what circumstances can a D-rated taxpayer apply for tax credit repair?

Class D taxpayers who have rectified their tax credit default and maintained no new default records in the tax management system for 6 or 12 months can apply for tax credit repair.

 

Four specific applications:

• Taxpayers whose tax credit is directly judged as D grade because they are determined to be major tax violators and defaulters

Application requirements: The information of the defaulting subject has been withheld or ceased to be published in accordance with the relevant provisions of the State Administration of Taxation, and there is no new record of tax credit default for 12 consecutive months before application.

• Taxpayers whose tax credit is directly judged as Grade D due to other non-compliance

Application requirements: Those who have corrected their tax credit default, fulfilled their tax legal responsibilities and have no new records of tax credit default for 12 consecutive months prior to application.

• Taxpayers whose tax credit for the current year has been retained at grade D due to a direct award of grade D for the previous year’s tax credit

Application requirements: the tax credit default has been corrected and the tax legal responsibilities have been fulfilled, or the information of the defaulting subject has been withheld or ceased to be published in accordance with the relevant regulations of the State Administration of Taxation, and there is no new record of tax credit default for 12 consecutive months before the application.

• Enterprises registered or operated by persons directly responsible for taxpayers with tax credit grade D, whose tax credit is evaluated as grade D by association

Application requirements: No new record of tax credit default for 6 consecutive months prior to application.

 

Good policy – no penalty for first offence

According to the regulations, the tax credit level is evaluated once a tax year and the tax authorities determine the results of the previous year’s tax credit evaluation in April each year.

In 2022, when evaluating the tax credit rating for the year 2021, the tax authorities will implement the provisions of the State Administration of Taxation Announcement No. 31 of 2021, and the tax credit rating of taxpayers with “first-violation impunity” will not be affected.

According to Notice No. 6 of 2021 of the State Administration of Taxation, the “first violation of impunity” refers to the exemption from punishment in accordance with the law for some violations of the law that are minor, can be corrected in time and do not cause harmful consequences when they occur for the first time by taxpayers.

If a taxpayer is not subject to administrative penalties under the “first violation impunity” provision, the relevant records will not be included in the tax credit evaluation.

 

The “first offence without penalty” must meet the following three conditions at the same time:

• It is the first time that a taxpayer or withholding agent incurs a matter [2]listed in the First Offence Impunity List.
• The consequences of the harm are minor.
• They should take the initiative to rectify the situation before the tax authorities discover it or within the period ordered by the tax authorities to rectify the situation.

 

The “First Violation Impunity List” lists the matters subject to “first violation impunity” in two batches, with a total of 14 items, including various types of minor tax violations such as information submission, tax declaration and ticket management.

The “first violation of impunity” is not included in the tax credit evaluation and does not affect the tax credit, but it does not mean that you can take a chance and think that the first time you owe or miss tax will not be punished and will not affect the tax credit.

According to the Tax Collection and Administration Law, tax evasion, non-payment or underpayment of tax payable are not covered by the “first violation”, but the first violation will also lead to late payment, fines and tax credit points, so the company should pay attention.

 

[1] http://www.chinatax.gov.cn/chinatax/n810341/n810825/c101434/c5170720/content.html

[2] http://www.chinatax.gov.cn/chinatax/n810341/n810825/c101434/c5162954/content.html

http://www.chinatax.gov.cn/chinatax/n810341/n810825/c101434/c5171844/content.html

 

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