What Is Net Operating Loss Carryback?

The business loss credit means that the net operating loss of the current year can be deducted from the taxable income of previous and subsequent years to support the taxable income of the following years (reduction of income tax payable), or to apply for the refund of income tax paid in the previous year.

Operating loss credit

Right!

The business loss credit means that the net operating loss of the current year can be deducted from the taxable income of previous and subsequent years to support the taxable income of the following years (reduction of income tax payable), or to apply for the refund of income tax paid in the previous year.

In order to publicize tax burdens and promote economic development, the tax laws of various countries allow the offsetting of business losses. China s provisional regulations on corporate income tax stipulate that if a taxpayer incurs an annual loss, he can use the income from the next tax year to make up for a period of no more than five years. Some countries have more favourable tax laws. As stipulated by the United States, the operating losses of a certain year can be offset by the first three years and the next 15 years, or only by the last 15 years.

Chinese name

Operating loss credit

Deduct

Annual taxable income

Application

Refund of income tax paid

Comprehensive

Total taxable income multiplied by income tax rate

Operating carryback of the current year can offset the taxable income of the previous year and apply for refund of income tax paid. As stipulated by the US tax law, the operating loss of the current year can be offset to the previous three years to offset the taxable income of the previous year (starting from the earliest one year) and apply for refund of the income tax paid. The company can choose to offset this year's operating loss with the previous three years. If there is no offsetting operating loss, it can be offset with the next 15 years; or it can choose to only offset the annual operating loss with the next 15 years. The company has chosen, that is, cannot be changed.

The annual loss incurred by an operating loss carryforward company can only be covered by income tax in subsequent years. As stipulated in China's tax law, the annual losses incurred by an enterprise can only be made up by income tax in subsequent years, and the longest compensation period is not more than five years. The US tax law stipulates that the losses before the offset are insufficient, and that there are still losses that can be offset to the later period. The income tax impact generated after the offset is the amount of income tax saved in the future. Whether this future income tax benefit can be realized depends on whether there is taxable income in future years. Moreover, its estimation is highly uncertain. Therefore, when operating losses are settled, income tax benefits should not be recognized until the actual deduction of taxable income in principle. However, the question is whether deferred income tax assets that can be deducted from temporary differences and business losses offset should use different recognition standards. Since both can be listed as deductible amounts in income tax returns in subsequent years, there is no substantial difference. The two should use the same recognition standard, that is, income tax benefits can be recognized in the year in which the loss occurs. At present, there are no regulations in China that allow enterprises to adopt this treatment method, and enterprises generally do not make special treatment after the loss is settled.

A tax rebate can be applied for losses made up by the taxable profits of the previous year. The tax refund amount is debited to "receivable tax receivables" and the "income tax expense" is credited: the losses made up by the taxable profits in the years after the losses reduce the future tax payable, and the amount of income tax impact is debited to "deferred tax assets". Credit "income tax expense". Turn it back when you make up losses later.

An example is as follows: Company A's operating loss is made up by 15 years after arrival and 15 years after arrival. The tax rate is 30%. The tax information for each year is shown in the following table:

year	1996	1997	1998	1999	Year 2000	2001
Taxable profits / tax losses	500000	700 thousand	400000	-2 million	200 thousand	400000
Income tax paid	150000	210,000	120000	0

A tax loss of 2 million yuan occurred in 1999. 1.6 million yuan (500,000 + 700,000 + 400,000) will be made up from taxable profits in 1996, 1997 and 1998. Tax receivables of RMB 480,000 (150,000 + 210,000 + 120,000). An unrecovered loss of 400,000 yuan results in deferred income tax assets of 120,000 yuan:

Borrow: tax refund receivable 480,000

Deferred income tax assets 12 thousand

Loan: Income tax expense 600,000

In 2000, the taxable profit of 200,000 yuan continued to make up for losses, and the income tax benefit of 60,000 yuan was realized:

Borrow: 60,000 income tax expenses

Loan: Deferred income tax assets of 60,000

A taxable profit of 400,000 yuan was realized in 2001. Of which 200,000 yuan make up the balance of the loss, and the remaining income tax benefit of 60,000 yuan is realized:

Borrowing: 120,000 income tax expenses

Loan: Deferred income tax assets of 60,000

Income tax payable 60,000

(1) After the loss is settled and before the loss is settled.

There are two main ways for international tax losses to offset other years' taxable profits:

(1) Tax losses are carried forward to a later stage, which is referred to as the loss after the loss. It refers to the taxable profit after a certain period of time after offsetting the tax loss. As a result, future taxes payable are reduced. For example, according to China s tax laws, tax losses can be made up from taxable profits for five consecutive years from the next year.

(2) The tax loss is carried forward, which is referred to as the loss. It means that the taxable profit for a certain period of time before the tax loss is offset against the loss from the earliest one year). The income tax paid can be refunded. If it is not enough to make up for the entire tax loss, the remaining loss amount shall be carried forward to a later period.

Take the United States as an example. The losses incurred by the enterprise in turn offset the taxable profits of the three years before, two years before, and one year before. If there are still unrecovered losses, the taxable profits for 15 consecutive years will be made up from the year following the loss. Tax receivables will be formed before the loss is settled. Bring cash inflows immediately to alleviate the financial difficulties of the loss-making enterprises; after the loss is settled, it can only be used to make up for losses in future years. Reduce future cash outflows by paying less taxes. It has little effect on solving the current financial difficulties of enterprises. Then consider the time value of money. It can be said that unless the tax rate increases significantly in the future. Usually the loss is more favorable than the loss.

(2) Analysis of income tax impact of tax loss credit.

Tax losses that offset taxable profits in other years will result in income tax benefits. You can apply for a refund of the income tax paid in the previous year before the loss is settled, and this part of the income tax benefits will be realized immediately. To offset temporary differences. A deferred income tax asset should be recognized. The income tax benefits included will be realized as future profits are made; losses are realized; if it is estimated that there are not enough taxable profits to make up losses in the future, some or all of the income tax benefits cannot be realized. The deferred income tax asset impairment provision should be made for the part that is expected to be unrealizable.

Use the taxable profits of other years to make up for the tax losses, refund the taxes paid and reduce future taxes. From the perspective of the entire compensation period, the sum of the actual taxes paid is exactly equal to the sum of taxable income multiplied by the income tax rate. It can be seen that the business loss credit is actually a cross-year performance of the principle of fair taxation. It is possible to balance the tax burden of the profitable and loss-making enterprises and the stable profitable enterprises.