Whether the corresponding input tax for raw materials purchased for internal research and development activities of an enterprise can be deducted has always been controversial in practice. This article intends to study this issue. Scope of VAT input tax related to R&D activities The VAT input deduction corresponding items involved in the company’s internal R&D activities mainly include: 1. Raw materials, tools, low-value consumables, etc. consumed in R&D activities. 2. Water, electricity, fuel, power, etc. consumed by R&D activities. 3. Machinery and equipment purchased for R&D activities. 4. VAT taxable services purchased for research and development activities. Definition of R&D activities There is no specific definition of R&D activities in the value-added tax regulations. However, the Notice of the State Administration of Taxation on Issuing the "Administrative Measures for Pre-tax Deduction of Enterprise Research and Development Expenses (Trial)" (Guo Shui Fa [2008] No. 116) and The "Guidelines for the Management of High-tech Enterprise Recognition" (Guokefahuo [2008] No. 362) does involve this. The two documents have basically the same definition of R&D activities. According to Guokefahuo [2008] No. 362, R&D activities refer to “the creative application of science in order to obtain new knowledge in science and technology (excluding humanities and social sciences). New technological knowledge, or ongoing activities with clear goals to substantially improve technologies and products (services). The creative use of new scientific and technological knowledge, or substantial improvement of technologies and products (services), refers to the continuous improvement of technologies and products (services) by enterprises. Innovations in services) have made valuable progress and have a promoting effect on the technological progress of relevant industries in the region (province, autonomous region, municipality directly under the Central Government or city under separate state planning), excluding routine upgrades undertaken by the enterprise or direct application of certain scientific research results. and other activities (such as direct adoption of new processes, materials, devices, products, services or knowledge, etc.). "In view of the fact that the main purpose of the above regulations is to enjoy the scope of restrictive corporate income tax preferential policies, the standards for R&D activities are relatively high, with special emphasis. “It has a promoting effect on the technological progress of relevant industries in the region (province, autonomous region, municipality directly under the Central Government or city under separate state planning)”, which obviously excludes many smaller R&D activities within enterprises. Accounting regulations may be more general. "Accounting Standards for Business Enterprises No. 6 - Intangible Assets" stipulates that expenditures on internal research and development projects of an enterprise should be distinguished between expenditures in the research phase and expenditures in the development phase. Research refers to original planned investigation conducted to acquire and understand new scientific or technical knowledge. Development refers to the application of research results or other knowledge to a plan or design before commercial production or use to produce new or substantially improved materials, devices, products, etc. In contrast, accounting regulations are more "flexible", but both accounting and income tax regulations emphasize "new or substantial improvements" as the basic feature of R&D activities. Further research and combined with general practice, it can be concluded that from the perspective of the coverage of R&D activities: 1. Although income tax-related regulations exclude "humanities and social sciences", there is no restriction in accounting, that is, R&D activities do not only refer to natural sciences , may also include the humanities and social sciences. 2. R&D activities not only occur in the field of VAT taxation, but may also occur in non-VAT taxation industries, such as agriculture, construction and installation industry, post and telecommunications industry, other service industries, etc. From the perspective of the process of R&D activities, 1. R&D activities are divided into research stages and development stages. 2. R&D activities are likely to be successful and produce scientific and technological achievements, which include patents (invention patents, utility model patents and design patents) and non-patented technologies. 3. R&D scientific and technological achievements should be capitalized under certain conditions. 4. In practice, successful R&D activities may produce products at the same time, and the products will be sold. In extreme cases, the sales revenue of the products may even be greater than the entire R&D investment. 5. R&D activities may also fail and produce no scientific and technological achievements or products. In view of the different results of R&D activities, it is obvious that the deduction of input tax related to R&D activities should not be static for different situations. Analysis of VAT input tax deduction related to research and development activities (1) If the industry the company is mainly engaged in is a non-VAT taxable field, the input tax related to the research and development activities of these companies cannot be deducted even if a VAT invoice is obtained. Deduct input tax.
(2) If the company is mainly engaged in an industry that is subject to value-added tax, can the corresponding input tax on the research and development activities of these companies be deducted? This requires specific analysis: 1. Main regulations involving input tax deduction of value-added tax (1) Article 10 of the "Interim Regulations of the People's Republic of China on Value-Added Tax" stipulates that the input tax of the following items shall not be deducted from the output tax Deductions: ①Purchased goods or taxable services used for non-VAT taxable items, VAT-exempt items, collective welfare or personal consumption; ②Purchased goods and related taxable services with abnormal losses; ③Abnormal losses Purchased goods or taxable services used for lost products in progress and finished products; ④ Consumer goods for taxpayers’ own use as prescribed by the finance and taxation authorities of the State Council. (2) Article 23 of the "Implementation Rules for the Interim Regulations of the People's Republic of China on Value-Added Tax" stipulates that the non-VAT taxable items mentioned in Article 10 (1) of the Regulations and these rules refer to the provision of non-VAT VAT taxable services, transfer of intangible assets, sale of real estate and real estate construction in progress. 2. Main views on input tax deduction related to R&D activities (1) One view is that R&D activities should be capitalized if the R&D activities are successful and meet the conditions stipulated in the "Accounting Standards", that is, a certain scientific and technological achievement with successful R&D should be capitalized Accounting should be recorded as "intangible assets". If the enterprise later transfers the intangible assets, according to the provisions of the tax law, the "transfer of intangible assets" is a non-VAT taxable item, and the corresponding input tax originally recorded in the intangible assets should be transferred out at the time of transfer. If the intangible asset has not been transferred, but has been used and amortized by the company, because it does not involve the act of "transfer of intangible assets" and is not "used for non-taxable items" according to the tax law, there is no need to transfer input tax. out. (2) Another view is that when the R&D expenditure is recorded as "intangible assets", input tax should be transferred out, not at the time of transfer. Because of reference to the regulations related to real estate, the tax law also stipulates that "sales of real estate and real estate projects under construction" do not allow input tax to be deducted. However, in actual operation, as long as the raw materials purchased by the enterprise are used in real estate or real estate projects under construction, regardless of whether they are sold , input tax should be transferred out immediately. (3) There is also a more strict view that whether R&D activities generate intangible assets or not, they are “non-VAT taxable services” and input tax should be transferred out. 3. Analysis The core of the input tax deduction issue related to R&D activities lies in whether the R&D activities engaged in by general industrial enterprises belong to "non-VAT taxable services." According to Article 5 of the "Implementation Rules of the Interim Regulations on Value-Added Tax", non-VAT taxable services refer to the transportation industry, construction industry, finance and insurance industry, post and telecommunications industry, culture and sports industry, entertainment industry, etc. that are subject to business tax. Labor services within the scope of service industry tax items. In addition, according to Cai Shui Zi [1999] No. 273, business tax is exempted from income earned by entities and individuals engaged in technology transfer, technology development business and related technical consulting and technical service business. Technology development refers to the behavior of developers accepting commissions from others to conduct research and development on new technologies, new products, new processes or new materials and systems. From a general point of view, R&D activities are basically equivalent to the "technological development" mentioned in the document, except that one is "entrusted development" and the other is "independent research and development". There should be no difference in their essence. From this perspective, the input tax involved in R&D activities should not be allowed to be deducted. But as mentioned above, if a successful R&D activity produces a new product, and the sales revenue of the new product is even greater than the R&D investment, then the output VAT of the new product will be levied, and the corresponding input VAT will not be deducted. This is not only inconsistent with normal logic, but also inconsistent with the taxation principle of value-added tax. The solution lies in another regulation, namely Cai Shui [2005] No. 165. Although technology transfer and technology development generally fall within the scope of business tax, there are exceptions. According to Cai Shui [2005] No. 165, taxpayers are entrusted with When developing software products, if the copyright belongs to the trustee, value-added tax will be levied. If the copyright belongs to the trustee or is jointly owned by both parties, no value-added tax will be levied. It can be seen that in the tax policy of software development, the criterion for distinguishing between value-added tax and business tax is whether the "copyright ownership" is transferred. If the copyright ownership is not transferred, the development behavior is regarded as a "software product", which in essence provides added value. Taxable services are subject to VAT. If there is transfer, they are regarded as non-VAT services and business tax is levied.
4. Conclusion For industrial enterprises, the purpose of R&D activities is generally to produce new products or improve processes. Although technology transfer may also occur, it is a minority after all. According to the principle of "substance over form" in the tax law, the author believes that with reference to the regulations of software development enterprises, regardless of whether the enterprise's R&D activities are successful or not, the input value-added tax involved should be allowed to be deducted in the current period of purchase. (1) Considering the taxation principle of value-added tax, the R&D activities of general industrial enterprises are mostly inseparable from their products or services. In essence, they should also belong to a "reprocessing procedure of the production (processing) process of products and services." ”, the value of this “reprocessing procedure” is ultimately reflected in the product, both in terms of purpose and results. (2) If R&D activities form intangible assets and the intangible assets have not been transferred, then this part of the intangible assets should be amortized regardless of tax law or accounting regulations. From the perspective of the entire service life of the intangible assets, The value of the intangible assets has actually been amortized into the value of the product through annual installments, and the corresponding output tax has been paid through sales of the product. From this perspective, this part of the intangible assets ultimately bears the output tax, so according to the general principles of value-added tax, the corresponding input tax should also be deducted. (3) If the intangible asset has not been used by the enterprise, but has been transferred midway, refer to Caishui [2005] No. 165. Since it is not ultimately used for "VAT taxable items", it should be transferred in the current period. The corresponding input tax transfer will be carried out taking into account the impact of the amortized life. 5. Another issue that needs to be clarified regarding the deduction of input tax related to R&D activities. Another basis for believing that materials used for R&D activities cannot be deducted from input tax is that losses such as raw materials and power consumed due to failed R&D activities fall under the "Interim Value-Added Tax" Item (2) of Article 10 of the Regulations "Purchased goods or taxable services used for products in progress and finished goods that are abnormally lost". Regarding this view, according to Article 24 of the "Implementation Rules of the Interim Regulations on Value-Added Tax", the abnormal losses referred to in Article 10 (2) of the Regulations refer to theft, loss, mold and deterioration caused by poor management. loss. We can clearly conclude that the failure of R&D activities is a common situation and has nothing to do with "poor management", let alone "stolen, lost, moldy and spoiled", so it obviously does not fall into the category of abnormality stipulated in the above documents. scope of loss.