Recently, the material of a listed company issuing A shares to a specific target was officially accepted by Shenzhen Stock Exchange. Previously, the Shenzhen Stock Exchange had inquired about the fact that the paid-in capital of its subsidiaries had not been withheld and remitted to the natural person shareholders for a tax of 16.47 million yuan. Based on this case, this paper intends to distinguish between the tax violations of withholding agents "withholding but not withholding" and "withholding but not paying", and analyze the taxpayer's responsibility when withholding agents fail to fulfill their withholding obligations according to law.

I. The paid-in capital of subsidiaries has not been withheld and remitted by the Shenzhen Stock Exchange.

L company is a listed company in aviation manufacturing industry, mainly engaged in the research and development and manufacturing of aircraft components and systems. Company K is a subsidiary company and a limited liability company. On January 22nd, 2011, approved by the shareholders' meeting of Company K, Company K used the capital reserve-capital premium of RMB 152.182 million to increase the paid-in capital, including 5 individual shareholders, with a total capital increase of RMB 82.345 million. 5 in corporate shareholders, with a total capital increase of 69.837 million yuan. The individual shareholders are Zhang, Pu, Lou, Wang and Xu, respectively, increasing their capital by 71.6 million yuan, 3.575 million yuan, 3.575 million yuan, 1.7975 million yuan and 1.7975 million yuan in turn.

On March 10, 2021, the Inspection Bureau of S Municipal Taxation Bureau made a Decision on Tax Treatment, which confirmed that Company L had not withheld and remitted the personal income tax of "interest, dividends and bonus income" of 16.469 million yuan (including 14.32 million yuan from Zhang, 715,000 yuan from Pu, 715,000 yuan from Lou, 359,500 yuan from Wang) during the above-mentioned capital premium transfer to share capital.

(I) Shenzhen Stock Exchange's audit inquiry on this matter.

On November 13th, 2023, Shenzhen Stock Exchange issued an Inquiry Letter to Company L, asking Company L to explain the impact of the above-mentioned withholding behavior of Company K..

(II) Verification conclusion of Company L

K Company's failure to withhold and remit personal income tax in 2011 was due to historical misunderstanding of tax laws and regulations, which was not subjective and intentional. According to the information issued by the tax authorities, the tax authorities only asked the issuer to make up the tax without administrative punishment, so it was not a major illegal act.

(III) Summary

There is controversy in practice about whether personal income tax should be withheld and remitted when capital premium is transferred to paid-in capital. Some tax authorities believe that, according to the Announcement of State Taxation Administration of The People's Republic of China on the Collection and Management of Individual Income Tax on Equity Incentives and Shareholding Capital (State Taxation Administration of The People's Republic of China Announcement No.80, 2015) and other regulations, there is no need to withhold individual income tax when the share capital premium of listed companies is transferred to share capital, and the paid-in capital of unlisted companies is transferred to share capital, which should be regarded as dividend distribution and withholding individual income tax. However, from the perspective of the principle of tax law, the capital premium is formed in the investment link, which is a part of the capital invested by shareholders. If the capital premium is transferred to the paid-in capital according to the shareholding ratio of shareholders, it will only produce the effect of subject adjustment, and will not affect the shareholders' rights and interests, and will not produce income. Even if the capital is converted into capital in unequal proportion, the tax law does not clearly stipulate that the income will be realized in the capital transfer link. Moreover, after the capital transfer, the fair value of the equity held by some shareholders will increase, resulting in higher premiums and income in the equity transfer link, which can guarantee the realization of the national tax interests. Considering the principle of tax neutrality, it is not appropriate to make tax adjustments in the capital transfer link. In addition to the tax issue, the tax authorities' liability for K company and its shareholders in this case is also worthy of further analysis.

II. Does the withholding agent fail to fulfill the obligation of withholding and remitting according to law constitute tax evasion?

In order to strengthen the supervision of tax sources and prevent taxpayers from hiding their income and evading their tax declaration obligations, the income tax withholding system was established by legislation. Units and individuals with withholding obligations as stipulated by laws and administrative regulations must fulfill their withholding obligations according to law. In practice, there are two manifestations of withholding agents' failure to fulfill their withholding obligations. One is "withholding tax", that is, there is no withholding tax or tax payment, and the other is "withholding tax but tax payment", that is, the legal liabilities are different.

(I) The difference of administrative responsibility between "should be deducted but not deducted" and "deducted but not paid"

First, whether qualitative tax evasion is different.

According to Article 63 of the Law on the Administration of Tax Collection, a withholding agent shall meet the following conditions if it constitutes tax evasion: First, it adopts the specific tax evasion behavior stipulated in the Law on the Administration of Tax Collection, namely: (1) forging, altering, concealing or destroying account books and vouchers without authorization; (2) Overlisting expenditure or omitting or underestimating income in the account books; (3) refusing to declare after being notified by the tax authorities; (4) Making false tax returns. Second, through the enumerated means, the behavior consequences of not paying or underpaying the deducted and collected taxes are caused.

"Withheld but unpaid" means that the withholding agent pays the taxpayer other than the tax, embezzles or misappropriates the withheld tax by himself, but fails to hand over the tax to the tax authorities. This is equivalent to illegally encroaching on the tax (state property) kept on behalf of the state, and the subjective malignancy is very obvious. Therefore, the withholding agent's "withheld but unpaid" belongs to the tax evasion stipulated in this paragraph. Comparatively speaking, "withholding should not be withheld" is manifested in the withholding agent's failure to fulfill the withholding obligation. From the subjective point of view, there are many forms such as withholding agent's ignorance of this obligation and misunderstanding of tax laws and regulations, all of which have no intention of tax evasion; Objectively speaking, all the money including taxes is paid to taxpayers, which causes the tax authorities not to receive taxes, and will not directly cause the loss of state taxes, so it will not be treated as tax evasion. Therefore, there are essential differences between "withholding tax" and "withholding tax", and there are also differences in administrative responsibility.

Second, whether to charge a late fee is different.

According to Article 63 of the Law on the Administration of Tax Collection, if the withholding agent's "withholding and unpaid" constitutes tax evasion, the tax authorities may recover the unpaid or underpaid tax from him and impose a late fee. However, if the withholding agent "should withhold" the tax, according to the Reply of State Taxation Administration of The People's Republic of China on the Issue of Withholding Individual Income Tax by Administrative Organs (Guoshuihan [2004] No.1199), the withholding agent should withhold the tax and shall not charge the taxpayer or withholding agent any overdue fine.

Third, different fines.

According to Article 63 of the Law on the Administration of Tax Collection, if the withholding agent's "withholding and unpaid" constitutes tax evasion, the tax authorities can not only recover the unpaid or underpaid taxes and late fees from him, but also impose a fine of more than 50% but less than five times the unpaid or underpaid taxes. If the case constitutes a crime, he can also be investigated for criminal responsibility for tax evasion according to law.

According to Article 69 of the Law on the Administration of Tax Collection, "If a withholding agent fails to collect taxes due to withholding, the tax authorities shall recover the taxes from the taxpayer, and the withholding agent shall be fined more than 50% and less than three times the unpaid taxes due." In the case of withholding agent's "withholding", the maximum penalty he faces is three times, and there is no risk of being investigated for criminal responsibility.

It can be seen that similar behaviors such as "withholding" and overdue declaration should be prevented from being widely interpreted as tax evasion, so as not to harm the interests of taxpayers and withholding agents.

(II) The difference of criminal responsibility between "withholding" and "withholding"

According to the provisions of Article 201 of the Criminal Law, withholding agents face more serious criminal risks than taxpayers in tax evasion, which are as follows:

First, constitutive requirements: the withholding agent's crime of tax evasion is not limited by "tax evasion ratio"

For taxpayers, the standard of filing and prosecuting tax evasion crime is "amount+proportion", but according to the second paragraph of Article 201 of the Criminal Law and the third paragraph of Article 52 of the Provisions of the Supreme People's Procuratorate and the Ministry of Public Security on the Standards of filing and prosecuting criminal cases under the jurisdiction of public security organs (G.T.Z. [2022] No.12), withholding agents resort to deception and concealment. If the amount is more than 100,000 yuan, criminal responsibility can be investigated, and there is no need to meet the requirement that tax evasion accounts for more than 10% of the total taxable amount of various taxes.

Second, procedural rules: The withholding agent's crime of tax evasion is not restricted by "administrative preposition".

According to the fourth paragraph of Article 201 of the Criminal Law, on the one hand, unless a taxpayer has been subjected to criminal punishment for evading tax payment or has been given more than two administrative punishments by the tax authorities within five years, he can be exempted from investigation of criminal responsibility if he has been subjected to administrative punishment after the tax authorities have issued a notice of recovery according to law. On the other hand, the tax authorities' first administrative punishment is the pre-procedure for criminal prosecution of tax evasion. Before the end of the pre-procedure, the public security organs put taxpayers on file for investigation on suspicion of tax evasion, which is beyond the pre-procedure of administrative punishment. Therefore, after taxpayers are found to have evaded taxes, there is still an "administrative pre-position" amulet to isolate criminal risks. However, the criminal accountability of withholding agents is not restricted by the above rules. Once withholding agents are found to have evaded taxes and reached the standard of filing a case for prosecution, they may face up to seven years in prison.

(III) Why didn't the personal income tax of Company K be punished?

First, according to the Notice on Further Doing a Good Job in Investigating and Handling Tax Illegal Cases (No.30 [2017] of the Tax Administration), "For tax illegal enterprises, the illegal means, circumstances, amount, illegal times, subjective fault degree and attitude of correcting mistakes should be comprehensively considered when implementing tax administrative punishment. For those who fail to pay or underpay taxes due to inaccurate understanding of tax policies, miscalculation and other mistakes without resorting to deception or concealment, taxes and late fees shall be recovered according to law, and the uncertainty is tax evasion. " In this case, K Company's failure to withhold and pay personal income tax is due to historical misunderstanding of tax laws and regulations, which is not subjective and intentional. Therefore, K Company does not constitute tax evasion and should not be punished for tax evasion. Secondly, according to Article 86 of the Law on the Administration of Tax Collection, "if an act that violates tax laws and administrative regulations and should be given administrative punishment is not discovered within five years, no administrative punishment will be given". In this case, it has been more than five years since the day when Company K failed to withhold and pay personal income tax, and it should not be punished according to this regulation.

III. Does an individual's failure to declare the income that should be withheld and remitted by withholding agents constitute tax evasion?

(I) The tax declaration obligation of individuals to obtain taxable income

According to the provisions of Article 10 of the Individual Income Tax Law, taxpayers are obliged to file tax returns in the following circumstances:

According to the provisions of Item (3) of the first paragraph above, if taxable income is obtained and the withholding agent fails to withhold the tax, the taxpayer shall file a tax return according to law. Therefore, although withholding tax is the legal obligation of withholding agents, taxpayers still have the obligation to declare their taxable income, that is, taxpayers bear the "supplementary responsibility" for withholding obligations of withholding agents.

(II) Extension: Does the annual settlement of undeclared "deductible" comprehensive income tax constitute tax evasion?

Annual settlement refers to the process that after the end of the year, the taxpayer summarizes the annual income of four comprehensive incomes, such as wages and salaries, labor remuneration, royalties, etc., MINUS the annual expenses and deductions, obtains the taxable income, calculates the personal income tax payable for the whole year according to the annual tax rate table of comprehensive income, subtracts the tax paid in advance in the year, and handles the annual tax declaration with the tax authorities and settles the tax that should be refunded or supplemented. Before the promulgation of the new Individual Income Tax Law, individuals' income from wages and salaries, labor remuneration, royalties and franchise operating expenses were withheld and remitted, and there was no need for final settlement and payment. Except for certain situations that need to be declared, tax declaration was not required in most cases. Because there is no requirement for individuals to set up account books and vouchers, it is difficult to match the four types of tax evasion if individuals do not declare their comprehensive income. However, after the promulgation of the new law, if the comprehensive income needs to be settled, the taxpayer shall file a tax return according to law, and clarify the specific circumstances that need to be settled and the tax declaration obligations under the corresponding circumstances. According to the provisions of Article 25 of the Regulations for the Implementation of the Individual Income Tax Law, the circumstances that need to be settled for obtaining comprehensive income are as follows:

Therefore, in line with the above circumstances, the taxpayer shall settle all the comprehensive income (including the part that the withholding agent should withhold) and calculate the personal income tax payable. If the withholding agent has the tax that should be withheld, and the taxpayer declares it at the time of final settlement and settles the tax that should be paid according to the final settlement result, the taxpayer should not be considered as tax evasion. If the taxpayer fails to declare it at the time of final settlement, it is not to declare the tax. The tax authorities have the right to recover the tax and late fees that the taxpayer fails to pay or underpays according to the provisions of the second paragraph of Article 64 of the Law on the Administration of Tax Collection, and impose a fine of more than 50% and less than five times of the tax that is not paid or underpaid, but it does not constitute tax evasion. If it is difficult for the tax authorities to make accounting, they can also make a Notice of Ordering Rectification within a Time Limit to the taxpayer according to the provisions of Article 62 of the Law on the Administration of Tax Collection, requiring the taxpayer to file tax returns and submit tax information within a time limit. If a taxpayer fails to file a tax return and submit the tax information within the time limit required by the tax authorities after receiving the Notice of Ordering Correction within a Time Limit, it shall be ordered to file a tax return within a time limit and refuse to file a tax return, and may be subject to qualitative tax evasion and punishment.

IV. Summary

In practice, due to various economic behaviors, it is difficult for withholding agents to judge whether they have withholding obligations based on multi-party payment and unclear nature of the money. There are many cases where withholding agents are punished by tax because of "withholding", which has great tax-related risks. Although according to the Law on the Administration of Tax Collection, the taxpayer should be recovered and the withholding agent should be fined under such circumstances, there are still many tax authorities who require the withholding agent to pay back the tax according to the Notice of State Taxation Administration of The People's Republic of China on Several Specific Issues Concerning the Implementation of the Law on the Administration of Tax Collection in People's Republic of China (PRC) and its Detailed Rules (Guo Shui Fa [2003] No.47). Therefore, enterprises or other withholding agents should accurately identify and perform their withholding obligations according to law when they have corresponding economic activities. If there are circumstances that cannot be judged, you should seek tax guidance from tax professionals or competent tax authorities in time.