The electric power industry is the most important key energy industry in the development of the national economy, a basic industry related to the national economy and people's livelihood, and a priority development focus in the economic development strategies of countries around the world. The tax declaration involved in the process of equity transfer of electric power company is the focus of tax authorities in recent years. Tax bureaus around the world have issued documents one after another requesting that equity transfers be subject to tax verification. Failure to declare or concealment of income will be recognized as tax evasion and face fines or criminal penalties. When transferring equity in a power company, a reasonable transaction price and investment cost need to be determined, or else adjustments or challenges from tax authorities may arise. These will affect the actual earnings and cash flow of the power company. The author intends to analyze the tax-related issues that may be involved by combining actual cases and the characteristics of equity transfer in the power industry.

I.Case study: power company signed a "dual contract" to transfer equity, the enterprise was penalized for tax evasion, and the person in charge and financial personnel were sentenced for tax evasion.

In March 2017, the local tax bureau found that Guangdong Tianmou Electric Power Company had an undeclared equity transfer transaction during the audit. Yimou Power Company is a wholly-owned subsidiary of Tianmou Power Company, with a capital contribution of RMB 500,000, and 160,000 square meters of land under its name. 2012, Tianmou Power Company let 100% of the equity interest of Yimou Power Company to Guangdong Xinmou Stone Company Limited, and obtained a transfer payment of RMB 44 million yuan, of which RMB 500,000 yuan was transferred to the company's account through bank transfer, and the remaining RMB 43.5 million yuan were all transferred to the original The remaining 43.5 million yuan were transferred to the original legal representative's personal account, which was not listed on the company's books and not declared for enterprise income tax. Tianmou Electric Power Company argued that the Supplementary Contract agreed that the tax was to be borne by the equity transferee and that it should not bear the corresponding tax, and the tax authorities determined that the actual bearer of the tax was Tianmou Electric Power Company, which should be held responsible for concealing the income, etc. The tax authorities in January 2018 characterized its behavior as tax evasion and demanded that the back tax be paid and be at a fine of double the amount of tax, which was in total more than 10 million yuan. However, in September 2017, the judicial authorities had already convicted the deputy general manager of Tianmou Electric Power Company, Lu Moumou, and the accountant, Huang Moumou, of tax evasion in this matter, and sentenced them to three years' imprisonment and a fine.

In this case, Tianmou Electric Power Company reduced its tax liability by signing a "yin and yang contract" and concealing its income in the form of understating its income in its books of accounts when it transferred its equity, which was in line with Article 63 of the Tax Collection and Management Law on tax evasion, and the tax authorities imposed tax treatment and penalties on it. However, according to Article 63 of the Tax Collection and Administration Law and Article 201 of the Criminal Law, for taxpayers suspected of tax evasion, the tax authorities should firstly implement tax audit and make tax treatment and penalty decisions on the taxpayers, such as taxpayers failing to make up the taxes, late fees and fines in accordance with the decisions of the tax authorities, the judicial authorities can only pursue the taxpayers for tax evasion criminal responsibility.
In the author's opinion, most of the electric power companies are equipped with corresponding equipment and land resources, and at present, electric power companies are easy to be concerned by the tax authorities, which may cause the tax authorities to audit because of the low price of the equity transfer, resulting in an increase in the tax burden, and even be recognized as tax evasion. In addition, the equity transfer of power companies is characterized by large tax-related amounts and frequent transfers, which is very likely to cause tax adjustments of equity transfer payments, back taxes and late payment fees, while facing the risk of being recognized as tax evasion. For electric power companies, on the one hand, the choice of pricing method will lead to a huge difference in tax burden, and on the other hand, the tax adjustment will lead to more than just an increase in tax pressure, and will affect the long-term development of the enterprise. How can the equity transfer of electric power company effectively reduce the tax risk? For the case handling controversial procedural issues, how to use legal means to deal with it? To address this issue, it is necessary to analyze both the uniqueness of China's electric power enterprises and relevant tax laws and regulations.

II. The tax-related risk points of equity transfer of electric power enterprises

(I) The risk of being recognized as tax evasion for "yin and yang contract" equity transfer

According to Article 63(1) of the Tax Collection and Administration Law, "A taxpayer who forges, alters, conceals, or destroys without authorization account books and account vouchers, or overstates expenditures or omits to list or understates revenues in the account books, or who refuses to make a declaration after being notified to do so by the tax authorities or who makes a false declaration, and who fails to pay or underpays the tax payable, is guilty of tax evasion. " In the above case, a power company in the sky received an audit from the tax authorities for understating the income in the books of accounts, and was recognized as tax evasion and fined accordingly. In practice, yin-yang contract is generally recognized as "not listed in the books of accounts, understated income" or "false tax declaration" behavior and then determine that the transferor constitutes tax evasion. False tax declaration generally means that the taxpayer has fulfilled the obligation of tax declaration, but the declared taxable amount is inconsistent with the actual situation, which may be realized by underreporting the income from the transfer of equity and overreporting the original value of the transfer of equity. Theoretically, it is generally believed that false tax declaration requires the transferor to have subjective intent, however, in practice, the actual price received by the transferor of equity transfer is determined, if the tax declaration and the actual situation does not match, it is difficult to claim that they do not have the intent to steal tax. Taxpayers with yin and yang contracts of equity transfer constitute tax evasion, in addition to paying back taxes, they also face the responsibility of adding late payment fees and fines, and more importantly, they may be transformed into criminal liability. In the above case, the court held the company's directly responsible personnel criminally liable for tax evasion in accordance with Article 201 of the Criminal Law.

(II) Risk that failure to file a declaration or to file a declaration in a timely manner may be recognized as tax evasion

In recent years, the tax-related issues of equity transfer have gradually become the focus of tax authorities, and the tax issues of equity transfer of electric power companies have also gradually entered into the sights of tax authorities. For example, in the case of equity transfer of an electric power enterprise, A certain electric power company transferred its wholly-owned subsidiary B company to C company at the price of 12.8 million dollars, and both parties agreed that the taxes involved in the transaction were all borne by the C company, and after the completion of the share transfer, A company did not file a tax return in respect of the transaction.2021 In November 2021, Company A received a penalty notice from the tax authorities, requiring Company A to pay the retroactive EIT and imposing a fine of fifty percent of the corresponding tax. We believe that in the process of equity transfer, failure to declare or timely declaration is not tax evasion, but still faces the risk of paying back tax and imposing additional fine; if the enterprise has occurred the act of providing false information to the tax authorities, it may be recognized as tax evasion by the tax authorities.

The amount of tax involved in the transfer of equity in power companies is huge, and the amount of back taxes paid in the audit may be as high as hundreds of millions of dollars, and the failure to declare in time may become a heavy burden for the enterprises. In January this year, Beijing Shunyi District Taxation Bureau, using the levy management software, screening and analyzing the information of enterprises under its jurisdiction, found that the shareholders and shareholding ratio of Company C had changed not long ago, and it was understood that Company C had been steadily held by four shareholders for a long time. Two of them are non-resident enterprises, Company A and Company B, which hold 14% of Company C's shareholding respectively. Not long ago, the shareholding structure of Company C was changed, with Company A's shareholding becoming zero and no longer a shareholder of Company C, while Company B's shareholding was increased to 28%. The shareholders and shareholding ratio of the enterprise have changed a lot, but the tax officer did not find any declaration information related to this. After carefully studying the equity transfer information provided by Company B, the tax officials found that the equity transfer agreement showed that in January 2022, Company A and Company B reached an agreement whereby Company A transferred its 14% equity interest in Company C to Company B for a transaction consideration of more than 5 billion yuan. Eventually, under the continuous tracking and supervision of the Shunyi District Tax Bureau, Company B declared and paid nearly RMB300 million of tax in accordance with the requirements of the tax authorities and paid the late payment fee in full within 5 days after the tax payment. 

(III) Low transaction price may be subject to tax adjustment

On July 8, 2014, the Circular of the State Administration of Taxation on Strengthening the Levy and Administration of Enterprise Income Tax on Equity Transfers (Tax General Letter [2014] No. 318) proposed to strengthen the long-term management mechanism of enterprise income tax on equity transfers, and strengthen the levy and administration and supervision of the income tax on equity transfers by conducting regular inspections and strengthening the assessment of equity transfer transactions, identifying problems in a timely manner and improving the levy and administration measures. Among them, the transaction behavior of low price of equity transfer is the key object of attention of tax authorities. In the aforesaid case, Tianmou Electric Power Company transferred its shareholding with the capital contribution of Yimou Company as the transaction price, and transferred 160,000 square meters of land under the name of Yimou Company by way of supplementary contract to avoid the corresponding tax, and its transaction price was obviously low, which also aroused the attention of the tax authorities.

The power industry is not only an important pillar of the national economy, but also one of the industries that contribute the most tax revenue to the country. Meanwhile, as a well-established industrial industry, the power company is usually equipped with appropriate equipment and land for producing, transmitting and distributing electric energy. The power company may be in a related transaction or the subject company losses and other reasons, the company's equity transfer at a lower price, and the tax authorities for the business situation and other assets, such as a comprehensive assessment of the enterprise does not recognize the transfer of equity at a flat price, the company required to make up for the full amount of taxes, late payment fees, or even recognized as tax evasion.

III. Analysis of equity transfer dilemmas in electric power companies

(I) The tax amount is large and involves inter-provincial equity transfer

In May 2015, China Light and Power Investment Group merged and reorganized with National Energy Investment Group Corporation to establish China Energy Investment Group Corporation, which became one of the leading enterprises in China's energy industry.In 2018, CGNPC merged with National Nuclear Power Technology Corporation to establish China Nuclear Energy Construction Corporation, which became one of the leading enterprises in China's nuclear power industry. The reorganization of the head power generating companies is often related to the merger between China's top 500 companies and involves a huge amount of taxable value, with over 1,800 billion yuan of assets involved in the establishment of the National Energy Investment Group Corporation (NEIGC). The "opinions on promoting supply-side structural reform to prevent and resolve the risk of overcapacity in coal and electricity" put forward to support the advantageous enterprises and the main industry enterprises through asset reorganization, equity cooperation, asset replacement, gratuitous transfer and other ways to integrate the coal and electricity resources, the scale of merger and reorganization of electric power companies to expand and accelerate the process, recently there are reports pointed out that the JinkoSolar Technology intends to 14 million yuan to transfer the Tongling Jingneng 100% shareholding.

In addition, the subsidiaries of the Electric Group Company are involved in a number of provinces, and the equity transfer of the Company requires cross-provincial tax treatment, and there may therefore be cross-provincial issues such as transfer of information and convergence of tax authorities, and it may be more likely that the procedures and determinations are different due to the existence of tax regulations in each region and the different treatment of the tax authorities, which may result in an increase in the tax burden on the enterprise.

(II) Frequent equity transfer transactions involving complex assets

From the information released by the Beijing Property Rights Exchange, it is understood that only in February, the confirmed disclosure of equity transactions in the electrical industry, there are dozens of head power companies such as Guodian Investment, Datang Group, etc., to carry out property rights transactions, and in the country to promote the supply-side reform of the moment, the power company's absorption and equity transactions are bound to be more frequent, and at the same time, the electrical industry has a larger amount of transactions, which is easy to cause the attention of the tax authorities. In addition, due to the special nature of the electric power industry, involving many company assets, not only involving power equipment and land resources, the value of the qualification of the electric power company involved is even more difficult to determine, and the price of equity transfer of the same type of enterprise may be very different, and it is impossible to confirm the price by comparable price, therefore, if the tax authorities determine that the transfer price of the enterprise is unreasonable, then the determination of the transfer price may become a major difficulty in the dispute between the tax enterprises.

(III) Lack of understanding of tax incentives related to equity transfer by power companies

In the context of supply-side reform, the State strongly supports the restructuring and merger of enterprises in the power industry and other taxpaying pillar industries, such as the power industry, which often involves land resources, and therefore the State has continuously continued and improved the provisions relating to land value-added tax tax preferences from the Notice of the Ministry of Finance and the State Administration of Taxation on the Land Value-added Tax Policies Relating to the Restructuring and Reorganization of Enterprises (Cai Shui [2015] No. 5) in 2015.2021 On May 31, 2021, the Announcement on the Continuation of Land Value-added Tax Policies Relating to the Restructuring and Reorganization of Enterprises (Notice of the Ministry of Finance and the State Administration of Taxation Announcement No. 21 of 2021), in order to continue to support the restructuring and reorganization of enterprises, extended the policy of reducing or exempting the land value-added tax relating to the merger and reorganization of enterprises to the end of 2023 In addition, according to the Circular of the Ministry of Finance and the State Administration of Taxation on Issues Concerning the Handling of Enterprise Income Taxes Related to the Promotion of Enterprise Reorganization (Cai Shui (2014) No. 109), the transfer of equity interests in some electric power companies can be subject to special tax treatments, and these tax incentives can significantly reduce the burden on the enterprises and alleviate the pressure on the enterprises' capital.

Through the search of administrative and criminal cases, the author has learned that many electric power companies lack attention and sensitivity to tax-related matters due to the lack of a more complete and systematic management system for tax incentives, which leads to the incorrect application of tax incentives by electric power companies.

IV. Solutions

(I) Enterprises need to do a good job of equity transfer tax compliance

Under the background of carbon neutrality, the market-oriented construction of electric power is the core of China's energy system reform, which inevitably involves the reshuffle of the electric power industry. Equity transfer of electric power companies is an important means for the development and adjustment of the electric power industry, which involves a huge amount of money, and it has a positive effect on the promotion of competition in the electric power market, optimization of resource allocation, and enhancement of efficiency and effectiveness. Therefore, electric power companies should formulate a standardized internal control system to ensure that the equity transfer transactions comply with the provisions of the tax law and avoid tax-related illegal acts.

In order to cope with tax audits, power companies should establish a perfect invoice management system and contract management system, set up a specific document library of supporting materials for equity transfers, train internal control personnel in a timely manner, enhance the tax sensitivity of the relevant staff, and establish a compliance red line. Meanwhile, according to the differences in the details of the equity transfer, choose the appropriate treatment and select appropriate tax incentives. It may be difficult to build a large tax compliance team, and you can choose to hire lawyers and other tax law professionals to carry out regular tax compliance health checks for the enterprise to eliminate risks and help the development of the enterprise.

(II) Proactive and professional communication with tax authorities

Power company equity transfer transaction involves many types of taxes and tax policies, which leads to increased tax-related risks, so it is indispensable to maintain good communication with the local tax authorities, you can choose to take the initiative to negotiate on related matters before the transfer of equity, to reduce the risk of tax-related. In the process of tax inspection, enterprises should actively cooperate with the tax inspection. In case of difficult and complex tax cases, you can choose to hand over to the tax lawyers to intervene, not only can be more effective in solving the dilemma faced by the enterprises in the inspection, but also can help enterprises to better apply the statement, defense, hearing and other procedures, to solve the tax disputes in the front-end, to avoid reconsideration, litigation to increase the burden on the enterprises. Especially in the inspection bureau has not yet made a decision to deal with, penalties, lawyers intervene with the tax authorities to communicate is very important and necessary.

(III) Legally safeguard their own rights and interests

Power companies should actively cooperate with the tax authorities on the premise of inspection, reasonable and legal protection of their rights and interests, in the inspectorate there is a violation of legal procedures or other illegal behavior, should also have to deal with. In the aforementioned case, the judicial authorities in the administrative case is still in the process of trial, it has been sentenced to criminal penalties, does not meet the Criminal Law Article 210 of the conditions of the penalty to block the cause, the enterprise and the relevant personnel can be in the criminal procedure to actively strive for, and at the same time to do a good job in the administrative procedure of the characterization of the defense work, so as to strive for a better processing results.