Analysis On The Issue Of Income Tax On Debt Forgiveness During Enterprise Bankruptcy Restructuring

The issue of corporate income tax from debt forgiveness in bankruptcy reorganization is a topic of ongoing debate,with disagreements centering around whether corporate income tax should be imposed on such income,and if so,what type of tax concessions should be granted to the enterprise undergoing bankruptcy restructuring.There is also considerable discussion on how to achieve the purpose of tax reduction for the enterprise in bankruptcy.Existing tax laws classify income from debt forgiveness as income from debt restructuring,which is typically subject to taxation by the relevant authorities.In reality,bankruptcy restructuring differs significantly from regular debt restructuring,and as such,the proceeds from debt forgiveness during restructuring do not qualify as taxable objects due to their unique characteristics.Consequently,they should not be charged corporate income tax.It is essential to consider the tax equity principles while deciding on the tax treatment of such income.Based on these principles,the income generated through reorganization debt forgiveness should not be considered a preferential tax policy.On the contrary,the income from debt forgiveness during bankruptcy restructuring aligns with the characteristics of statutory non-taxable income.This is due to the fact that the income is not generated from profit-making activities and is used to save the bankrupt enterprise instead of fulfilling daily business activities for the greater benefit of society.As a result,it is the state’s responsibility to bear the income tax burden of debt forgiveness during bankruptcy restructuring.To achieve a balance of interests among all parties involved while realizing the value of the bankruptcy system,the law should classify income generated from bankruptcy restructuring debt exemptions as statutory non-taxable income.This solution is optimal and the right approach to address this issue..