Ⅰ.Tax-related risks of employee compensation planning have been highlighted, and the related risks should be emphasized.

Recently, Huashui has observed a number of cases of tax-related risks arising from “compensation planning”. For example, when a capital management company paid out bonuses to its employees in 2017, the amount of bonuses was too high and the tax burden increased. In order to save tax for its employees and avoid its own withholding obligations, the company accepted an employee remuneration planning service provided by a tax planning platform enterprise. The tax planning platform enterprise is set up in a tax depression with financial incentives, through investment and financing consulting service business with the enterprise involved in the case, so that the enterprise involved in the case will pay the funds to the platform enterprise, and then the platform enterprise directly through the form of “public-to-private”, the funds will be paid to the enterprise employees. The tax planning platform charged a certain amount of “planning fees” in the process of capital return, and then issued an invoice for consulting fees for the enterprise involved in the case.

At present, the tax planning platform is suspected of the criminal offense of false invoicing has been investigated by the public security organs in accordance with the law, and the tax inspection bureau where the platform is located has issued the “Letter of Concurrence” and the “Notification of Confirmed False Invoicing” to the tax inspection bureau where the recipient enterprise is located in turn, and the capital management company has entered into the tax inspection procedure, and the invoices have been characterized as false invoicing.

 In recent years, with the continuous development of the economy and the increase in the income of corporate executives, similar employee compensation planning services have emerged in various forms. However, some employers lack the awareness of tax compliance and trust the so-called tax planning platforms, with which they falsely issue invoices through fictitious business, extract funds, and then pay employees' salaries off the books to avoid employees' personal taxes. Obviously, such a business model is hardly legal, and the tax risk is extremely high. And after the introduction of the Fair Competition Review Regulations, the industry ecology of platform enterprises utilizing the tax depression policy is difficult to continue, and the historical tax problems have begun to appear. Once the platform is audited, it will involve a large number of downstream invoiced enterprises, and the employers as well as individual employees will face administrative and criminal risks. Payroll tax risk has to be prevented.

Ⅱ.Analysis of tax-related legal risks of “salary planning”

1. Tax planning platform: severe administrative and criminal liabilities for using false invoices for “planning”

The tax planning platform, as the leader and main implementation body of the planning service, firstly faces severe administrative and criminal liabilities for false invoicing and false invoicing. Tax planning platforms, as the leading and main implementation body of planning services, first face extremely severe administrative and criminal liabilities for false VAT invoices and false invoicing. From the administrative level, in the planning business of fictitious transactions and false invoicing to obtain funds, the work provided by the employee to the employer has already been completed, and there is no real service, labor and other activities between the tax planning platform and the employer. Therefore, the invoice does not correspond to a real transaction, which conforms to the definition of false invoicing without goods “without purchasing or selling goods, without providing or accepting services, and without engaging in other business activities, but issuing or obtaining invoices”, and constitutes false invoicing under administrative law. At the same time, the administrative risk of false invoicing will be transformed into criminal risk. According to whether the invoices issued by the platform enterprises have the function of deduction, they are suspected of the crime of false VAT invoices and false invoicing:

in terms of false invoicing: according to the Interpretation of Several Issues Concerning the Application of Law to the Handling of Criminal Cases of Hazardous Tax Levy Management (Law Interpretation [2024] No. 4, hereinafter referred to as the two high judicial interpretations), which is issued by the Supreme People's Court and the Supreme People's Procuratorate, the 10th article (3) provides that: “(3) Issuing special VAT invoices and other invoices used for fraudulent export tax rebates and tax deductions through fictitious transaction subjects for businesses that are not tax deductible according to the law” belongs to the category of falsely issued special VAT invoices. In the remuneration planning business, the tax planning platform essentially joined the labor relationship between the employees and the enterprise by means of fictitious business, converted the non-deductible employee remuneration into deductible taxable items, and realized the false invoicing for fraudulent tax deduction, which was in line with the above sin of false invoicing. Due to the long-term operation of the platform, the amount of false tax invoices generally exceeds 5 million yuan, and will face a penalty of more than 10 years or even life imprisonment, with extremely heavy criminal liability.

 As far as false invoicing is concerned: Article 12 of the Judicial Interpretation of the Two High Commissions stipulates that the crime of false invoicing mainly includes: (1) issuing invoices without actual business; and (2) issuing invoices that do not correspond to the name of the goods, the name of the service, the quantity of the goods, the amount and so on of the actual business despite the fact that there is actual business. As mentioned earlier, the platform belongs to external false invoicing without actual business, and faces a criminal liability of up to 7 years if it issues ordinary VAT invoices.

(Ⅱ) Tax planning demand companies: the risk of false invoicing intertwined with the risk of non-withholding of personal tax

1. False invoicing risk of tax planning demand units for employers

When the tax planning platform of the upstream invoicing enterprise has broken out the risk of false invoicing, and the invoices issued are also characterized as false invoicing, then, as the recipient, it is inevitable to face the administrative and criminal risk of false invoicing: from the administrative level, the enterprise accepts the invoices that are falsely invoiced, and, according to Article 9 of the Provisional Regulations on Value-added Tax (VAT), for the invoices corresponding to the amount of input tax shall not be deducted from the amount of output tax, and it is necessary to make the transfer out of the input tax; and, at the same time, according to the Administrative Measures for Deduction of Vouchers Before Income Tax (the Enterprise Meanwhile, according to the Measures for the Administration of Vouchers for Pre-tax Deduction of Income Tax (Announcement of the State Administration of Taxation No. 28 of 2018), the costs corresponding to the invoices shall not be deducted before tax. From the criminal level, as the recipient of the false invoices, the employing unit not only knows that the invoices are falsely issued, but also actively participates in and cooperates with the tax planning platform to obtain funds through false invoices, which obviously possesses subjective malicious intent, and therefore faces the same risk as the invoicing party for the crime of falsely issuing VAT invoices or the crime of false invoicing.

2. Risk of tax planning demand companies not fulfilling the withholding and payment obligation

Regardless of whether the employing unit is distributing the funds on its own or through the platform enterprise, according to the principle of substantive taxation, the funds received by the employees are all “wages and salaries” in nature. According to Article 9 of the Individual Income Tax Law, the employer has the obligation to withhold and pay on behalf of the employees. According to Article 69 of the Law on Administration of Tax Collection, “If the withholding agent should withhold but does not withhold, or should collect but does not collect the tax, the tax authorities shall recover the tax from the taxpayer, and the withholding agent shall be subject to a fine of more than 50% of the withholding agent's withholding, and more than three times the amount of the tax that should have been withheld or collected but not collected.”

It is worth mentioning that there is currently a controversy over how the withholding agent should recover the withholding portion that should have been withheld. One school of thought holds that, according to Article 2 of the Circular of the State Administration of Taxation on Several Specific Issues Concerning the Implementation of the Law of the People's Republic of China on the Administration of Tax Collection and its Implementing Rules (Guo Shui Fa [2003] No. 47), the tax authorities shall “oblige the withholding agent to make up for the withholdings not yet withheld and the taxes not yet collected by the due date, or to make up for the taxes not yet collected ”; however, another school of thought believes that the State Taxation Development [2003] No. 47 violates the provisions of the Tax Collection and Administration Law, and the tax should be recovered from the taxpayer by the tax authorities according to the provisions of Article 69 of the Tax Collection and Administration Law. From the practical point of view, the tax authorities mostly require employers to withhold and collect employees' personal tax by themselves. As a result, in addition to the fine, the employer faces the economic risk of advancing the personal tax and the difficulty of recovering it afterwards.

(Ⅲ) Salaried employees in compensation planning: as beneficiaries of the planning service, the risk of tax evasion is serious.

Employees of the enterprise either passively or actively participate in the arrangement of “salary planning” and become the main beneficiaries of the planning. For the employees, they are the subject of personal income tax obligation and have the obligation to pay personal tax truthfully according to the law. When the employee accepts the salary planning, it objectively leads to the failure to declare and pay the personal income tax truthfully, which causes the loss of the national tax; subjectively, if the employee “refuses to declare after the notification of declaration”, even if he/she participates in it passively, he/she also has the subjective malice, which constitutes the tax evasion.

Article 63 of the Tax Administration Law provides, “...... by the tax authorities notice to declare and refused to declare or false tax declaration, do not pay or underpay the tax due, is tax evasion.” It is worth noting that the meaning of “notification of declaration by tax authorities” is still controversial:

One viewpoint is that only the issuance of formal tax documents by the tax authorities to an individual constitutes a notification declaration; another viewpoint is that, with the establishment of the four comprehensive income “remittance” system under the Individual Income Tax, the State Administration of Taxation (SAT) releases announcements every year on the remittance of comprehensive income under the Individual Income Tax. For example, the 2023 Announcement clearly requires that “taxpayers are required to make remittance if one of the following circumstances is met: ...... (b) the comprehensive income income obtained in 2023 exceeds 120,000 yuan and the amount of remittance required to pay back tax exceeds 400 yuan. If the comprehensive income is under-declared or undeclared in 2023 due to the wrong application of income items or the withholding agent's failure to fulfill the withholding obligation in accordance with the law, the taxpayer shall apply for remittance in accordance with the law.” The above Announcement can be regarded as a notification declaration for taxpayers.

For the employees, due to the existence of the second view in practice, the employees' failure to declare the consolidated income according to the law has already constituted the tax evasion of “refusing to declare after notification”, and they are facing the penalty of 0.5 times to 5 times of the fine. In addition, according to paragraph 4 of article 201 of the Criminal Law, if an employee who has already committed tax evasion fails to faithfully comply with the tax treatment decision or penalty decision made by the tax authorities, the risk of tax evasion will be transformed into the criminal risk of tax evasion.

Ⅲ.How to avoid tax-related legal risks in the current “salary planning”?

(Ⅰ) Enhance the risk awareness and reject the illegal and irregular planning services

employers and employees should firstly know the current tax laws and policies, establish the awareness of tax risk avoidance, and fully realize that most of the so-called “salary planning” is in the grey area or even tax evasion, false invoicing and other illegal behaviors, which involves a high risk of tax-related administrative and criminal risks. Administrative and criminal risks are high. Of course, for all kinds of tax incentives stipulated by the tax law and the State Administration of Taxation, qualified enterprises and employees should actively apply for and enjoy them, so as to reduce the tax burden in a lawful and compliant manner. Employers can regularly hire a third-party professional organization to provide guidance and training on tax policies and conduct tax health checks to identify tax risks.

(Ⅱ) Correctly identify tax-related legal risks in “salary planning”

In recent years, as the State Administration of Taxation (SAT) has increasingly strengthened the collection and management of personal income tax, especially for “high net worth and high income earners”, a number of cases of tax evasion by net celebrities and executives have erupted. Employers and employees should realize that illegal and non-compliant planning business will inevitably face extremely serious administrative and criminal liabilities, and must be correctly identified and prevented. Especially at present, with the gradual strengthening of the construction of tax big data and “intelligent tax”, the “short board” of the tax authorities' personal income tax collection and management is constantly being made up, and with the information and data exchanges and sharing between the banks and the tax authorities, the behavior of the natural person's large-amount private accounts will trigger the banks' anti-money laundering warning. With the information exchange and data sharing between banks and tax authorities, the behavior of natural persons receiving large amounts of money from private accounts will trigger the anti-money laundering warning of banks, which in turn will trigger the tax evasion warning of tax authorities, and become the trigger for the outbreak of cases. For the planning business that requires false invoicing and transfer of funds from public to private, we should be more vigilant in identifying the risk points.

(Ⅲ) The risk of “payroll planning” has erupted and should be actively addressed

Where the invoicing platform enterprise is suspected of having committed the crime of false VAT invoicing, the invoiced employer needs to actively respond to the invoice risk. Combined with the business model and legal provisions, it is argued that the subjective purpose of the business is to help employees pay less or no personal income tax, not to fraudulently issue invoices to offset tax; in addition, the employer should actively cooperate with the tax authorities to investigate and make up for the personal income tax, late payment fees, and bear the fines that should be deducted but have not yet been deducted in order to try to dissolve and mitigate the legal liability and reduce the economic loss. When the enterprise employees are subject to tax audit or have received the notice of recovery issued by the tax authorities, they should actively make up the tax payable, pay the late payment fee and accept the administrative penalty for tax evasion in accordance with the provisions of Paragraph 4 of Article 201 of the Criminal Law, so as to prevent the criminal risk of evolving into a tax evasion crime.

(Ⅳ) The legal space for salary planning has been compressed, and tax concessions should be legally applied

The so-called tax planning, on the one hand, refers to helping enterprises to correctly apply tax incentives, reasonably arranging their business and making good declarations according to the provisions of the tax policy; on the other hand, it also refers to “tax avoidance”, i.e., taking advantage of the lag and loopholes of the tax law to reduce the tax burden through the use of tax depressions and the transformation of taxpayers' legal forms.

 However, whether it is legal tax incentives or tax avoidance in the gray area, it shall not violate the mandatory provisions of the tax law. At present, with the development of tax law and the introduction of the Two High Judicial Interpretations, some previous tax avoidance means have been expressly prohibited. For example, Article 1 of the Judicial Interpretation of the Two High Courts stipulates that the following behaviors are means of tax evasion: “(1) Concealment or decomposition of income and property in the name of another person by signing a ‘yin and yang contract’ or other forms; ”(4) Providing false materials to fraudulently obtain tax incentives”. Therefore, the tax-related risk of “salary planning” has increased and must be prevented. Enterprises and employees should establish the awareness of tax law compliance and apply tax incentives legally in order to avoid risks and operate healthily.