Recently, a "Notice of Ordering Correction within a Time Limit" issued by a tax office in Guangzhou has been circulating online. The notice shows that the tax declaration of a natural person's equity transfer related matters has implemented an arrangement that does not have a reasonable commercial purpose. After obtaining improper tax benefits, the tax authority requires them to re-file the tax declaration for the matter. The notice rarely invoked the provisions of Article 8 Paragraph 3 of the " Personal Income Tax Law", that is: if an individual implements other arrangements that do not have reasonable commercial purposes and obtains improper tax benefits, the tax authority has the right to follow reasonable methods Make tax adjustments.
Case introduction
A natural person holds 100% and 90% of the shares in Company A and Company B respectively. In September, the natural person established two sole proprietorship enterprises, and then the two sole proprietorship enterprises invested in the establishment of Company C. In October, the shareholders of Company A and Company B were changed from the natural person to 100% of Company C. The following month, the acquirer company acquired all of the shares of company C held by A and B. Nearly two years later, the tax authority issued a "Notice of Ordering Corrections within a Time Limit", requesting the natural person to re-declare tax returns for matters related to the transfer of equity.
Case study
1. Overview of the individual tax plan for the equity transfer involved
According to my country’s tax law, when an individual transfers equity, the transferor shall pay individual income tax and stamp tax. Equity transfer belongs to property transfer income, the applicable proportional tax rate is 20%, and the amount of personal income tax payable = (equity transfer income-original value of equity-reasonable expenses) * 20%. In some tax depressions, sole proprietorship enterprises can enjoy the approved collection policy, which can greatly reduce the individual tax rate, and even reduce personal income tax by more than 90%. Therefore, some individuals or companies will incorporate the approved collection into their own when transferring equity. Within the tax planning, this case was adopted in this way.
2. Approval of the income from equity transfer
The natural person transfers the equity of companies A and B to company C, which he actually fully controls,Although there is no relevant public information on the equity transfer income declared in this step, in practice, in order to achieve tax planning purposes, it is usually transferred at a fair price or at an appropriate premium.
In this regard, the "Administrative Measures for Individual Income Tax on Income from Equity Transfer (Trial)" (State Administration of Taxation Announcement No. 67, 2014) stipulates that the income from equity transfer should be determined in accordance with the principle of fair trade. Announcement 67 stipulates that the income from equity transfer is obviously low, but is still deemed to have justified reasons. For those who do not meet the conditions, the competent tax authority may approve the income from equity transfer. Announcement No. 67 clearly stipulates three verification methods. However, no further regulations are given on the verification methods. In fact, the jurisdiction is given to local tax authorities. Judging from the previous practice in various places, the Shaanxi Provincial Taxation Authority adopted the method of reviewing and comparing the capital verification report , bank inquiry letter, bank deposit journal, paid-in capital (share capital) book record, company charter, etc. to verify the original Value, Hainan Province approves taxation costs based on a certain percentage (15%) of the declared equity transfer income.
3. The commercial rationality of the planning plan
In this case, the acquiring company wanted to acquire the equity held by the natural person, but did not directly sign an equity transfer agreement with it, thus directly holding the equity of the two companies, but After some operations, he held shares in Company C. The three companies, A, B, and C, as the main operating entities, carried out this equity transfer operation within one month of their establishment. There are indeed doubts as to whether they have a reasonable commercial purpose.
But how to determine whether it has a reasonable commercial purpose? Article 8 of the "Individual Income Tax Law" stipulates that if an individual obtains improper tax benefits by implementing other arrangements that do not have a reasonable commercial purpose, the tax authority has the right to make tax adjustments in accordance with reasonable methods. If tax authorities make tax adjustments in accordance with the provisions of the preceding paragraph and need to levy additional taxes, they shall levy additional taxes and charge additional interest in accordance with the law. This clause serves as a general anti-avoidance rule in the Individual Income Tax Law, and its expression is almost the same as that in Article 47 of the Corporate Income Tax Law. However, since there is no further regulation on "reasonable business purpose" in the personal income tax law, it is very controversial whether it can be consistent with the definition of the corporate income tax anti-avoidance system. Civil and commercial activities between individuals may not be limited to economic interests, and their purposes are more diverse than those between enterprises.Whether such purposes other than non-economic interests can be attributed to reasonable commercial purposes and thus be recognized by the tax authorities still needs to be further clarified in the practice of tax law.
clear tax comment
Since Article 8 of the new tax law stipulates anti-avoidance clauses for resident individuals, cases where tax authorities apply “reasonable business purposes” clauses for tax adjustments are relatively rare. In the case of this article, the tax authority issued a "Notice of Ordering Correction within a Time Limit" to adjust its tax avoidance behavior after a lapse of nearly two years. In a tax evasion case in 2020, the Shaanxi Provincial Taxation Bureau accused Wu Mou In 2017, Mr. Xiao, Mr. Lin and others proposed to pay stamp duty, personal income tax, and fines totaling 139 million yuan in tax administrative penalties for signing the Yin-Yang contract during the equity transfer process to evade tax. This has sounded the alarm for individuals and companies that make unreasonable tax planning for equity transfers.
On April 29, 2021, the State Administration of Taxation put forward the overall requirements of “Tax Risk-Oriented Accurate Implementation of Tax Supervision”, and clearly included high-income group equity transfers into one of the eight key areas of focus. Subsequently, the tax bureaus and market supervision administrations of Guangzhou, Tianjin, Guangxi, Shenzhen, Beijing, Guangdong, Hunan and other places jointly issued notices on “Transferring of Shareholding Certificates for Individual Transfer of Shareholdings for Equity Change Registration”, and personal income tax will be paid as the handling of equity. Pre-procedures for change registration. In combination with the above-mentioned policies, it can be seen from cases in various regions that personal equity transfer has become a target of precise tax supervision.
In the era of big data, as tax-related information is exchanged and integrated, tax authorities have greatly improved their information collection and analysis capabilities. Tax avoidance methods such as non-withholding and payment, "friendship price" transfers, Yin-Yang contracts, and manufacturing false transactions have long been impractical , Approval of expropriation and other methods have also encountered the weapon of the tax authority's "reasonable commercial purpose" clause. With economic development, equity transfers are becoming more and more frequent. Whether individuals or enterprises, there must be laws to follow in the process of tax planning, and legal and reasonable methods must be adopted to save taxes, so as to prevent the loss of the gain.
copyright statement
This article is the original content of Ming Tax Research Center,Please contact us for reprinting and follow [Ming Tax] to subscribe for more content.
