First, the difference between initial measurement accounting and tax treatment The initial measurement of long-term equity investment in the accounting standards for business enterprises varies according to the ways of obtaining investment, and should be determined in two cases: business combination and non-business combination. (1) CAS 2, a long-term equity investment obtained by non-enterprise merger, stipulates that long-term equity investment shall be accounted for according to the initial investment cost when it is obtained; The Regulations on the Implementation of Enterprise Income Tax (hereinafter referred to as the Regulations) stipulates that the purchase price is the cost of paying cash to obtain investment assets. It can be seen that the tax basis of long-term equity investment obtained by paying cash is consistent with the initial cost. The difference of initial measurement of long-term equity investment is mainly reflected in the determination of long-term equity investment cost obtained by non-cash assets exchange. Accounting treatment: The Accounting Standards for Business Enterprises No.7-Exchange of Non-monetary Assets (CAS 7) stipulates that the long-term equity investment obtained by the exchange of non-cash assets should be distinguished from the fair value measurement and the cost model to determine the cost. Among them, under the fair value model, the initial investment cost should be determined based on the fair value of the exchange assets; If there is conclusive evidence that the fair value of the exchanged assets is more reliable than the fair value of the exchanged assets. Based on the fair value of the replaced assets. Under the cost model, the initial investment cost should be determined according to the book value of the exchanged assets. Tax treatment: according to the regulations, the fair value of investment assets obtained by means other than cash payment and related taxes paid are the costs. Theoretically, the exchange of non-cash assets is equivalent exchange, and the inequality of fair value is solved by premium. Therefore, under the fair value model, the tax basis of long-term equity investment is consistent with the initial cost; Under the cost model, the tax basis of long-term equity investment is determined based on the fair value of exchange assets, and its initial investment cost is determined based on the book value of exchange assets, so its tax basis is different from the initial investment cost, resulting in temporary differences. In addition, Caishui [2009] No.59, the tax treatment of corporate equity acquisition and asset acquisition and restructuring transactions should be subject to general and special tax treatment provisions according to different situations: First, special tax treatment, where corporate restructuring meets the five conditions of special restructuring at the same time, the tax basis of the equity or assets acquired by the enterprise can be determined by the original tax basis where the equity is acquired or the assets are transferred. At this time, the tax basis of equity investment is consistent with the investment cost determined by the enterprise using the cost model. Second, it is suitable for general tax treatment. If the enterprise reorganization cannot meet the requirements of special reorganization at the same time, the tax basis of the equity or assets determined by the purchaser shall be determined based on fair value, and the investment cost determined by the enterprise in tax basis is consistent with the fair value model. Special reorganization conditions: (1) It has a reasonable commercial purpose, and its main purpose is not to reduce, exempt or delay the payment of taxes; (2) The proportion of assets or equity of the acquired, merged or split part conforms to the prescribed proportion; (3) The original substantive business activities of the restructured assets will not be changed within 12 months after the reorganization of the enterprise; (4) The proportion of equity payment involved in the consideration of the restructuring transaction conforms to the provisions of this notice; (5) The original major shareholder who has made equity payment during enterprise reorganization shall not transfer the acquired equity within 12 months after reorganization. Among them, (2) and (4) refer to: in the equity acquisition transaction, the proportion of the acquired equity in all the acquired equity is not less than 75%, and the equity payment amount of the acquired enterprise at the time of equity acquisition is not less than 85% of the total transaction payment; In the asset acquisition transaction, the assets acquired by the transferee enterprise shall not be less than 75% of the total assets of the transferee enterprise, and the equity payment amount of the transferee enterprise at the time of asset acquisition shall not be less than 85% of the total transaction payment. It can be seen that the long-term equity investment formed by enterprise reorganization distinguishes between particularity and general reorganization in tax treatment and fair value measurement and cost model in accounting treatment. Therefore, under the fair value model, if the conditions stipulated in the special restructuring are met, the tax basis of long-term equity investment is different from the initial cost, resulting in temporary differences; At the time of year-end final settlement, the gains and losses of equity and asset transfer confirmed in accounting treatment shall be subject to tax adjustment. Under the cost model, if the conditions stipulated in the special restructuring are not met, the tax basis and initial cost of long-term equity investment are also different, resulting in temporary differences; When the final settlement is made at the end of the year, tax adjustments should be made to the gains and losses of equity and asset transfer that have not been confirmed in accounting treatment. (2) The initial investment cost of long-term equity investment is determined by holding merger under the same control and holding merger under different control. (1) Long-term equity investment obtained by holding merger under the same control. Accounting treatment: Accounting Standards for Business Enterprises No.2-Long-term Equity Investment stipulates that the share of the book value of the owner's equity of the merged party shall be regarded as the investment cost of the long-term equity investment on the merger date, and the directly related taxes and fees incurred shall be included in the "management expenses". If the accounting policies adopted by the merged party and the merged party are different before the merger, the book value of the assets and liabilities of the merged party shall be adjusted according to the accounting policies of the merged party, and the initial investment cost of the long-term equity investment shall be determined on this basis. Tax treatment: according to the regulations, whoever invests in the long-term equity of an enterprise shall be taxed on the basis of the total cost paid for the investment. The consulting fees and evaluation fees actually incurred by the enterprise shall be truthfully declared and deducted in the current period. Therefore, the difference between the initial investment cost of business combination under the same control and tax basis is mainly reflected in the difference between the share of owner's equity and the actual cost paid by the merged party. (2) Long-term equity investment obtained by holding merger not under the same control. Handling: Accounting Standards for Business Enterprises No.20-Business Combination stipulates that the purchaser shall take the confirmed business combination cost as the initial investment cost of long-term equity investment in business combination not under the same control. Among them, the merger cost includes the fair value of cash or non-cash assets, debts issued or undertaken by the buyer for business combination, equity securities issued on the purchase date and various direct expenses incurred in business combination. Tax treatment: the treatment method of income tax does not distinguish between long-term equity investments obtained under the same control and long-term equity investments obtained under different controls. The direct related expenses actually incurred in business combination are included in the investment cost in accounting treatment, while the tax law stipulates that they shall be deducted according to the facts in the current period. Therefore, the difference between the long-term equity investment in tax basis and the initial investment cost is mainly the direct related expenses in the process of enterprise merger. Of course, if the enterprise merger meets the special reorganization conditions, it also includes the difference between the cost of enterprise merger and the original equity tax basis held at the time of merger. Two. Differences between subsequent measurement accounting and tax treatment During the holding period, long-term equity investment is divided according to the factors such as the influence of the investing enterprise on the invested unit, whether there is an active market, whether the fair value can be obtained reliably, etc., and is accounted by cost method or equity method respectively. But no matter which accounting method the enterprise adopts, it will not change the treatment method of income tax. (1) Long-term equity investment is accounted for by the cost method. Scope of application of the cost method: the long-term equity investment held by the enterprise that can control the investee and the long-term equity investment that the investing enterprise has no common control or significant influence on the investee, has no quotation in the active market, and its fair value cannot be reliably measured. (1) The investee announces the distribution of cash dividends or profits. Accounting treatment: No.3 Interpretation of Accounting Standards for Enterprises (Caishui [2009] No.8, hereinafter referred to as No.3 Interpretation). For the long-term equity investment accounted by the cost method, the investing enterprise obtains the cash dividend or profit declared by the investee. Except for the cash dividends or profits that have been declared but not yet paid in the actual price or consideration paid at the time of investment, the investing enterprise shall confirm the investment income according to the cash dividends or profits declared by the investee, and no longer distinguish whether it belongs to the net profit realized by the investee before and after the investment. Instead, it is all included in the current "investment income" subject, which is consistent with the time when the tax law recognizes income. Tax treatment: According to the regulations, dividends, bonuses and other equity investment income shall be realized according to the date when the investee makes the profit distribution decision, except as otherwise provided by the competent department of finance and taxation of the State Council. The investment income obtained by direct investment of resident enterprises in other resident enterprises is tax-free income, but it does not include the investment income obtained by continuously holding shares issued by resident enterprises and listed and circulated for less than 12 months. Therefore, the investment income obtained by direct investment between resident enterprises belongs to tax-free income, and the year-end settlement needs tax reduction. (2) The investee announces the distribution of stock dividends. Accounting treatment: for stock dividends, no matter whether the enterprise adopts the cost method or the equity method, the investment enterprise does not do accounting treatment, and only needs to register the increased number of shares on the ex-dividend date for future reference to reflect the changes in the number of shares. Tax treatment: Article 13 of the Regulations stipulates that the income obtained by an enterprise in non-monetary form shall be determined according to fair value, in which fair value refers to the value determined according to the market price. If it is not tax-free income, it needs to be treated as tax increase at the time of year-end settlement. (3) Impairment of long-term equity investment at the end of the period. Accounting treatment: enterprises should judge whether there are signs of impairment of assets at the end of the accounting period. In case of impairment loss, no matter whether the enterprise adopts the cost method or the equity method, it should make provision for impairment and include it in the current profit and loss. Once the impairment provision for long-term equity investment is withdrawn, it cannot be reversed. When disposing of the investment, the impairment reserve shall be carried forward accordingly. Tax treatment: According to the regulations, unapproved assets impairment reserves, risk reserves and other preparations and expenses shall not be deducted before tax. However, Guo Shui Fa [2009] No.57 dealt with the static loss during the holding period of equity investment. If the equity investment of an enterprise meets one of the following conditions, the unrecoverable equity investment confirmed after deducting the recoverable amount can be deducted as the loss of equity investment when calculating the taxable income: the invested unit is declared bankrupt, closed, dissolved or revoked according to law, or its business license is cancelled or revoked according to law; The financial situation of the invested unit has seriously deteriorated, with huge accumulated losses, and it has stopped operating for more than 3 years, and there is no plan to resume business restructuring; It has no control over the investee, the investment term expires or the investment term has exceeded 10 years, and the investee has been insolvent due to operating losses for three consecutive years; The financial situation of the invested entity has seriously deteriorated, resulting in huge losses, and the liquidation or liquidation period has been completed for more than 3 years; Other conditions stipulated by the competent departments of finance and taxation of the State Council. In this way, the impairment of the enterprise due to the above reasons can be deducted before tax after approval by the tax authorities, thus reducing the difference between accounting and tax treatment. (4) Disposal of long-term equity investment. Accounting treatment: when disposing of long-term equity investment, the book value of the long-term equity investment corresponding to the sold equity should be carried forward. The difference between the selling price and book value of long-term equity investment, whether it is gain or loss, should be recognized as disposal gain and loss. Tax treatment: the difference between the price obtained from the transfer or disposal of investment assets and the investment assets tax basis is the income (or loss) from equity transfer. Because the book value of accounting may be inconsistent with that of tax basis, there is a corresponding difference between the gains and losses from the disposal of long-term equity investment and the amount of gains (or losses) from equity transfer, resulting in a one-time reversal of temporary differences. Therefore, it is necessary to carefully analyze the final settlement at the end of the year. For the losses actually incurred by an enterprise in the equity transfer, Guo Shui Fa [2009] No.88 stipulates that, with the approval of the tax authorities, it can be declared and deducted once in the current year. That is, the accounting treatment of the loss of enterprise equity transfer conforms to the provisions of the tax law. (II) Scope of application of equity method accounting for long-term equity investment: the long-term equity investment that the investing enterprise has joint control or significant influence on the invested entity, that is, the investment in joint ventures and associated enterprises, shall be accounted by equity method. (1) Adjustment of initial investment cost. Accounting treatment: CAS 2 stipulates that the initial investment cost of long-term equity investment is greater than the fair value share of the identifiable net assets of the investee, and the difference between them does not need to be adjusted; If the initial investment cost is lower than the fair value share of the identifiable net assets of the investee when the investment is obtained, the difference between the two shall be included in the current non-operating investment, and the book value of the long-term equity investment shall be adjusted and increased. Tax treatment: take the actual cost incurred by the enterprise to obtain investment as the tax basis for investment. The initial investment cost is less than the non-operating income generated by the fair value share of the identifiable net assets of the investee when the investment is obtained, and enterprise income tax is not levied. At the end of the year, taxes should be reduced. (2) Confirm the investment income. Accounting treatment: after the investment enterprise obtains the long-term equity investment, it adjusts the book value of the long-term equity investment according to its share of the net profit and loss realized by the invested entity, and recognizes it as the current investment profit and loss. When the investee announces the distribution of cash dividends or profits, the investment cost will be reduced accordingly, and the investment income will not be recognized. Only when the book value of long-term equity investment and other long-term rights and interests that substantially constitute the net investment of the investee is written down to zero, will the investing entity recognize the net loss of the investee, unless the investing enterprise is obliged to bear additional losses. Tax treatment: according to the regulations, the profits realized by the investee shall be paid by the investee, and the investor shall not confirm the after-tax profits; The accounting losses incurred by the investee shall be made up by the investee with retained earnings in the following years, and the tax losses incurred by the investee shall be made up by the taxable income realized by the investee in the following years, and the compensation period shall not exceed 5 years. When the investee announces the distribution of dividends or profits, the investor shall confirm the dividend income according to its share. In this way, in accounting treatment, the investment income is recognized when the investee realizes the net profit and loss at the end of the period; On the other hand, in tax treatment, only when the investee announces the distribution can the investor confirm the dividend income. Therefore, when the final settlement is made at the end of the year, one party should reduce the investment income confirmed by accounting; On the other hand, it is necessary to distinguish whether dividend income belongs to tax-free income, and the part that belongs to taxable income should be taxed and increased. (3) Changes in other owners' equity of the invested enterprise except the net profit and loss. Accounting treatment: For changes in the owner's equity of the investee other than the net profit and loss, the investment enterprise shall calculate the share it should enjoy or bear according to the shareholding ratio, adjust the book value of the long-term equity investment, and increase or decrease the capital reserve (other capital reserve). Tax treatment: this loss or gain is not recognized in other changes in the rights and interests of the invested enterprise, but only when it is disposed of. Since other changes in equity are directly included in the owner's equity and do not affect the accounting profit, there is no need to make tax adjustment. When the long-term equity investment is impaired, transferred or disposed of, its accounting and tax treatment can refer to cost accounting. When disposing of long-term equity investment, the relevant amount originally included in capital reserve shall be carried forward and recognized as current profit and loss.