Why is deferred income tax not recognized for long term equity investments accounted for by the equi

Long-term equity investments accounted for by the equity method are generally not recognized for deferred income tax. Long-term equity investments accounted for by the equity method will not incur deferred income tax if they do not intend to be in the near future**.

For long-term equity investments accounted for by the equity method, whether the relevant temporary differences between the carrying amount and the tax basis should be recognized for the relevant income tax impact, and the holding intention of the investment should be considered

1) If the enterprise intends to hold the investment for a long time, then:

Temporary differences due to adjustments to initial investment costs are not expected to be reversed in future periods, and there is no income tax impact on future periods, so there is no need to recognize deferred income tax. In the case where an enterprise is prepared to hold a long-term equity investment held for a long time, the relevant income tax impact is generally not recognized for the difference between the carrying amount and the tax basis of the long-term equity investment accounted for by the equity method.

2) If the enterprise changes its intention to hold it externally, then:

According to the tax law, when an enterprise transfers or disposes of investment assets, the cost of investment assets is allowed to be deducted. In the case that the holding intention changes from long-term holding to intended short-term**, the relevant temporary differences arising from the difference between the carrying amount and the tax basis of the long-term equity investment should be recognized as the relevant income tax impact.

Therefore, if the enterprise does not plan to make a long-term equity investment, it will generally not recognize deferred income tax.

No confirmation is required.

If the investment income is recognized by the equity method of long-term equity investment, the income of the enterprise shall not be recognized by the tax law if it is not actually received. When an enterprise actually receives cash dividends, the carrying amount of the long-term investment is offset in the accounting by the equity method, and the tax law recognizes it as an income, but the income is tax-exempt income from credit sales. There is no temporary difference between the investment income recognized by long-term equity investment and the tax law, and the difference is a permanent regret difference, so the impact on income tax is not recognized.

The investment income obtained by the investor in the investee is recognized according to the net profit, and the investee has paid enterprise income tax for this part of the income. On the premise of avoiding double taxation, no corporate income tax will be paid for this part. Under the equity method of long-term equity investments, the carrying amount of the long-term equity investment has been adjusted for investment income, and there is no need to adjust the deferred income tax at the end of the period.

The income tax on long-term equity investment accounted for by the equity method is not increased. If the initial investment cost of the long-term equity investment obtained by the enterprise under the accounting of the equity method is less than the fair value share of the investee's identifiable net assets that it should enjoy at the time of obtaining the investment, the carrying amount of the long-term equity investment shall be adjusted and included in the profit or loss for the period in which the investment is acquired. However, the Enterprise Income Tax Law stipulates that when an enterprise makes an equity investment externally, the investment assets obtained through the payment of cash shall be costed at the purchase price; Investment assets acquired by means other than cash payment are costed at the fair value of the assets and the relevant taxes paid; The part of the initial investment cost that is less than the fair value of the investee's net assets shall not be included in the taxable income, and shall be treated as a tax adjustment and reduction item when calculating income tax.

When an enterprise obtains a long-term equity investment, it adopts the equity method of accounting, and adjusts the carrying amount of the long-term equity investment according to the share of the net profit realized or the net loss incurred by the investee, and recognizes it as the profit or loss for the current period. In the calculation of income tax, this part of the investment income is not included in the taxable income; The losses incurred by the investee shall be made up by the investee in accordance with the provisions of the tax law, and the investment unit shall not deduct the investment losses recognized under the equity method before income tax, so it needs to be subject to tax adjustment.