First: Received compensations:

Should there be compensation by the project owner to the executing Incorporated Body, it shall be dealt with as follows:

1. Compensation resulting from increase in cost, such as amendment of the contract specifications:

   1. In the case of actual assessment on the Incorporated Body:

      The compensation is allowed at the year of recognition; and added to the profit of the year (or deducted from the loss of the year). The tax is then recalculated.

   2. In the case of a deemed assessment on the Incorporated Body:

      The compensation is allowed at the year or recognition, and shall be subject to the same estimation of the profit. The tax is then recalculated.

2. Compensation arising from other reasons:

   The compensation arising from other reasons, such as delay in settlement or contract withdrawal is considered as contingent revenue added to the profit for the year in which the revenue was recognized.

Second: Paid Compensations:

1. The amounts, which are paid as compensations by the Incorporated Body to other parties for carrying out some work are allowed as expenses accepted during the year in which it occurred, after verifying the settlement.

2. Penalties and compensations paid by the Incorporated Body to other parties due to mistakes, for which the Incorporated Body is responsible, are not allowed.

Third: Special and exceptional cases relating to compensations shall be treated separately after consulting the Tax Department in this regard.

Example 1: