The Yuhuatai district tax office in Nanjing has taken aim at how software companies classify R&D expenses. Software Valley is home to more than 4,600 software firms, and in 2024 some 2,015 companies in the district claimed the extra R&D deduction, totalling over 10 billion yuan. Reviewing auxiliary ledgers, tax staff found firms deducting cloud platform rental fees, which the rules do not allow for leasing and business services. One company cut its deduction by 900,000 yuan and paid back taxes plus 20,000 yuan in late fees. Following that lead, the office built a dual-screening model that cross-checks words such as cloud services in seller names against invoice categories, produces a high-risk list for manual review, and keeps a one-firm-one-file ledger. By the end of December 2025 it had screened 38 software companies and corrected misreporting, while pushing compliance handbooks and filing guides through direct tax-enterprise channels.
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Dual Screening Model Flags Misclassified R&D Expenses at Software Firms
The Yuhuatai district tax office in Nanjing has built a dual-screening model that cross-checks seller names and invoice categories to flag software firms that misclassify R&D expenses, pairing it with manual review. Software Valley hosts more than 4,600 software companies, and in 2024 some 2,015 local firms claimed the extra R&D deduction worth over 10 billion yuan. Auditors found companies deducting cloud platform rental fees, which are not eligible, and one firm cut its claim by 900,000 yuan and paid back taxes plus late fees. By the end of December 2025 the model had screened 38 software companies.
2026-10-30