Recently, a certain tax intermediary engaged in irregular planning, obtaining a substantial service fee without declaring taxes, and was fined four times the amount. The person in charge received a fivefold fine for submitting false tax declarations, emphasizing the gravity of the responsibility. Tax intermediaries refer to entities that, upon request, provide tax-related services such as tax representation to clients using their professional knowledge and skills. With the introduction of various regulatory requirements and industry standards in this field, practitioners in this industry urgently need to address issues such as providing irregular tax planning services, disseminating false advertising and promotional information, and distorting the interpretation of tax policies. It is crucial to standardize professional practices and enhance tax compliance. This article aims to analyze common forms of irregular tax intermediary planning, revealing the associated tax risks.

I. Focusing on Unlawful Tax Intermediaries: Urgent Need for Standardized Practices

(I) High Risks in Malicious Tax Planning by Tax Intermediaries

On April 29, 2021, the State Administration of Taxation Inspection Bureau issued an article titled "Implementing the Spirit of Opinions on Further Deepening Tax Management Reform, Emphasizing Precise Implementation of Tax Supervision with Tax Risks as the Guide." It not only identified intermediary organizations as a key focus in the industry but also highlighted the crackdown on tax-related illegal activities such as malicious tax planning using "tax havens," abusive related-party transactions, and tax evasion through new business models. Consequently, tax intermediaries, leveraging their professional advantages to circumvent tax and accounting regulations and reduce taxable obligations, pose a high risk of tax-related issues.

(II) Establishing a Normalized Management Mechanism for Tax Planning by Tax Intermediaries

On April 18, 2022, the State Administration of Taxation, the National Internet Information Office, and the State Administration for Market Regulation jointly issued the "Notice on Standardizing Tax Intermediary Service Behavior and Promoting the Healthy Development of the Tax Intermediary Industry" (Tax Administration Notice [2022] No. 34). It defined three high-risk service behaviors of tax intermediaries and outlined the division of responsibilities for regulating their service behavior. This not only provides taxpayers with the opportunity for self-examination and rectification of non-compliant tax planning but also specifies the administrative responsibility risks for tax intermediaries and their clients engaged in illicit tax planning to evade taxes or fraudulently claim tax benefits.

(III) Seven Departments Normalizing Crackdown on "Three Fakes," Rigorous Measures Against Falsification and Tax Evasion

In July 2023, a national joint meeting of seven departments was held in Beijing to promote the ongoing crackdown on tax-related illegal activities. The Supreme People's Court joined the efforts to normalize the crackdown on the "three fakes" (fake companies, fake exports, and false declarations). The new working mechanism intensifies efforts against these activities, enhances inter-departmental cooperation, and presents a more severe crackdown on fraudulent invoicing. Tax intermediaries providing services such as bookkeeping, fund transactions, and invoice issuance face increased tax risks if they engage in fraudulent invoicing due to misleading business information provided by clients.

(IV) Layered Standardization of Tax Professional Services and Continuous Crackdown on Malicious Planning

In June 2023, the State Taxation Administration issued the "Notice on Further Promoting the Standard Development of the Tax Professional Services Industry" (Tax Administration Letter [2023] No. 99). It emphasizes the need to "further strengthen the supervision and management of tax professional service institutions, resolutely punish illegal and irregular activities in the field of tax professional services in accordance with the law, and promote the standardized development of the tax professional services industry." In the process of investigating tax-related illegal cases, it is essential to inspect whether institutions providing tax professional services and their practitioners are involved in malicious planning or collusion. The document also outlines the basic guidelines and professional ethical principles for tax professional services in an attempt to ensure the industry's development is more standardized and healthy.

In the same September, the State Taxation Administration issued the "Basic Guidelines for Tax-related Professional Services (Trial)" and the "Code of Professional Ethics for Tax-related Professional Services (Trial)," emphasizing further that tax professional service institutions and their personnel must not induce or assist clients in engaging in tax-related illegal activities during the provision of tax-related professional services. Currently, the professional requirements for tax intermediaries engaging in tax-related professional services are more clear and specific, enabling the industry to develop in a more standardized and healthy manner.

II. Common Forms of Irregular Tax Planning by Tax Intermediaries

(I) Equity Transfer Sector: Irregular Planning Exploiting Individual Income Tax Policies

Case One: Between 2018 and 2021, Company A utilized the policy of individual income tax based on declared collections. Through irregular planning for equity investment enterprises, A assisted these enterprises in changing their business scope, resulting in significant tax losses for the country. During the provision of the aforementioned tax-related services, A charged service fees totaling 83.83 million yuan from 12 partnership enterprises and companies, without declaring taxes. After the discovery of these illegal activities, tax authorities initiated an inspection of A. However, A refused to cooperate and obstructed the investigation by intentionally avoiding contact, not returning delivery receipts, and using other means. Based on these illegal activities, A was charged with tax evasion and fined four times the amount of the underpaid tax.

Before the issuance of the "Announcement on the Collection and Management of Individual Income Tax on Operating Income from Equity Investment" (Announcement No. 41 of 2021) by the Ministry of Finance and the State Administration of Taxation, individual sole proprietorships and partnerships meeting certain conditions could apply for the preferential tax policy of individual income tax based on declared collections. Partnerships even became a preferred organizational form for holding platforms. However, with the announcement clarifying that individual sole proprietorships and partnerships holding equity investments are subject to regular tax audits, and the orderly elimination of improper implementation of fiscal and tax incentives, the tax advantages of holding platforms are no longer applicable. Engaging in actions such as stock conversion and reduction may now face a risk of retrospective adjustment.

(II) Online Entertainment Sector: Various Forms of Irregular Planning

With the exposure of tax evasion and illegal activities in the online entertainment and high-net-worth individual segments, irregular tax planning and assistance in tax evasion by tax intermediaries have also come to light during the crackdown on tax evasion in the online entertainment sector.

1. Tax Evasion through Income Splitting

In the tax evasion case involving Zheng Shuang, Zhang Heng was responsible for signing relevant entertainment contracts, negotiating remuneration, contract splitting, and payment collection. For Zheng Shuang's 160 million yuan remuneration for filming "The Enchanting Phantom," Zhang Heng, along with the production company, devised specific operational details and payment plans. To conceal the exorbitant remuneration, Zhang Heng drafted a "capital increase" agreement and established a receiving company as a cover. The corresponding income was split into two parts, 48 million yuan and 112 million yuan (actually received 108 million yuan). To avoid industry regulatory oversight, this scheme helped Zheng Shuang evade tax obligations, leading to a fine of 32.27 million yuan imposed by the Shanghai Municipal Taxation Bureau.

2. Exploiting "Tax Havens" to Change Income Nature

In the case of Viya evading taxes by concealing personal income and fictitious business activities, she admitted to being misled by tax intermediary tax planning. In practice, high-income individuals often register personal sole proprietorships or partnerships in "tax haven zones" to convert personal labor income or salary income into operating income for tax declaration. This was once a common tax evasion method among celebrities and online influencers. However, with the tightening of preferential policies and fiscal rebates, such actions now face a high risk of being classified as tax evasion.

(III) High-Tech Sector: Deceiving to Qualify for Tax Incentives

Case Two: Deng, well aware that Company S did not meet the conditions for being recognized as a high-tech enterprise, colluded with the company's leader Yuan to forge intellectual property certificates, personnel social security materials, and special audit reports. They applied for the recognition of Company S as a high-tech enterprise and fraudulently obtained 400,000 yuan in high-tech enterprise rewards. In this case, the leader of Company S was prosecuted for fraudulently obtaining 400,000 yuan in subsidies and was ordered to return the fraudulently obtained funds to the national treasury.

For companies found to have seriously falsified information during the high-tech qualification application process, the recognition authority can revoke their high-tech status. In such cases, the tax authorities can reclaim the corresponding tax incentives enjoyed by the company since the year it no longer met the qualification conditions. If the company's submission of false materials is severe, it may also be classified as tax evasion, leading to fines ranging from 50% to five times the underpaid tax.

(IV) Real Estate Sector: Shadow Contracts for Real Estate Transfer

Case Three: In January 2019, Ye sold two second-hand houses in Chikan District, Zhanjiang City, for an actual sale price of 1.5 million yuan. However, the transfer contract prepared by Ye stated a total price of 760,000 yuan, lower than the purchase price of the property (a loss-making sale). As a result, no personal income tax was owed. After tax authorities discovered that the sale of the second-hand houses was falsely reported through the signing of shadow contracts, evading taxes, they retroactively collected over 140,000 yuan in taxes and imposed late payment fines.

In practice, signing shadow contracts refers to concealing the true performance of transactions to reduce transaction costs. In the tax field, the transaction price recorded in the open contract is used to determine the taxable basis, while the confidential contract is used for actual performance. This method of underreporting taxes can easily lead to tax evasion risks, especially in areas such as equity transfers and real estate transactions. If disputes arise between the parties to transactions that have signed shadow contracts, the facts and content recognized in civil judgments are also likely to trigger tax audits.

(V) Other Sectors: Collusion for Falsified Invoicing and Malicious Planning

Case Four: Yan and several independent tax service personnel colluded with a fake invoicing gang. Using tax agency as a cover, they falsely registered shell companies, improperly handled real-name authentication, change registration, invoice issuance, and agency bookkeeping, illegally exploited pandemic prevention and control tax incentives, and fraudulently issued invoices. They issued 17,000 fake invoices with a total value of 15.94 billion yuan. Yan and other tax service personnel were sentenced to imprisonment ranging from 8 months to 7 years for assisting the criminal gang in issuing fraudulent VAT invoices for illegal gains.

For tax intermediaries, some organizations collude with clients to register numerous shell companies to "better" provide "tax planning" services. They assist clients in falsifying business documents to obtain tax incentives, thereby obtaining illegal benefits such as invoicing fees. However, some tax intermediaries are not cautious enough in their practice, neglecting to scrutinize the business information provided by clients. If the client's business information is misleading and results in the issuance of fake invoices, the tax intermediary may also face consequences when the risk of inflated input tax arises for the recipient company.

III. Tax Risks of Irregular Tax Planning by Tax Intermediaries

Tax intermediaries, as professional entities engaged in financial and tax agency and implementing tax planning, may face administrative and criminal risks if they assist taxpayers in evading taxes under the guise of tax planning.

(I) Administrative Responsibilities for Irregular Tax Planning by Tax Intermediaries

When tax intermediaries violate tax laws and regulations, leading to the taxpayer's failure to pay or underpayment of taxes, tax authorities can impose penalties on the taxpayer according to Article 63, Paragraph 1 of the "Tax Collection and Administration Law." According to Article 93 of the "Implementation Rules of the Tax Collection and Administration Law," if tax intermediaries illegally facilitate taxpayers in not paying or underpaying taxes, tax authorities can not only confiscate their illegal gains but also impose fines on them, not exceeding one time the underpaid or unpaid taxes. According to Article 15 of the "Regulations on the Supervision of Tax Professional Services (Trial)," tax authorities can designate tax intermediaries involved in such illegal activities as key supervision targets, lower their credit ratings, or include them in credit records. Additionally, they may temporarily suspend handling tax-related business on behalf of taxpayers (for a period not exceeding six months). Depending on the severity of the violations, tax authorities can also include tax intermediaries in the list of those with untrustworthy tax services, refuse to handle the tax-related business they represent, declare their "Taxation Practitioner Firm Administrative Registration Certificate" invalid, and recommend the revocation of their business license to market supervision authorities.

(II) Criminal Responsibilities for Irregular Tax Planning by Tax Intermediaries

On one hand, if a taxpayer who engages in irregular tax planning and evades taxes faces criminal liability for tax evasion, the tax intermediary who provided advice may also be implicated and face criminal risks for aiding tax evasion. On the other hand, in the process of providing traditional financial and tax agency services, even if tax intermediaries only issue invoices based on customer instructions and information, they may still be easily involved in criminal risks related to false invoicing if the customer engages in issuing fraudulent invoices. However, according to Article 205 of the Criminal Law, the crime of issuing fraudulent VAT special invoices requires the offender to have "clear knowledge that their actions will cause harmful consequences to society." If tax intermediaries can prove that they have fulfilled reasonable inspection duties for the materials provided by customers in the process of providing services, they should not be deemed to have the subjective intent to commit tax fraud. Tax intermediaries are in a "tool" role in the invoicing process and should not be criminally liable according to the law.

IV. Summary: Standardizing the Practice of Tax Intermediaries and Strengthening Tax Compliance

Tax intermediary organizations should regulate their own professional practices in accordance with the basic guidelines and ethical codes for tax professional services. While ensuring service quality, they should also be vigilant about practice risks. In their daily operations, tax intermediaries should prioritize the authenticity of their business, maintain and securely store business records, conduct regular self-inspections for tax compliance, exercise caution and approval throughout the entire business process, and ensure effective quality control and review after completing the business. By standardizing business processes, isolating tax risks, and strengthening tax compliance, tax intermediaries can enhance their overall professional practices.