With the development of the new business economy, flexible employment as a brand new employment model has attracted much attention in the market. It has been reported that the number of flexibly employed people has reached more than 200 million in 2021, and the overall market size of China's flexible labor has reached 1.1 trillion in 2022 and 1.34 trillion in 2023. Flexible labor platforms are favored by local governments and enterprises as a platform that connects enterprises with freelancers, transforming the traditional employment relationship between enterprises and laborers into a cooperative relationship between enterprises and laborers, and serving both the functions of reducing enterprise costs and promoting employment. More than 1,000 flexible labor platforms in provinces such as Tianjin, Hunan, Jiangsu, Liaoning, and Jiangxi have obtained the qualification of commissioned collection. However, some of the flexible labor platforms have been suspected of tax evasion and false invoicing, and have been disqualified from collecting tax on behalf of enterprises, and are facing administrative and criminal risks. In this article, we will focus on the tax-related risks of flexible labor platforms with practical cases to help platform enterprises achieve tax compliance.

I. Case Observation: Flexible labor platform has repeatedly become a tool for tax evasion and false accounting

(I) Network anchor was fined over 1.8 million RMB for evading personal income tax through employment platforms

According to the Guangxi Autonomous Region Tax Bureau publicized a network anchor evasion of personal income tax case shows that a well-known network live platform anchor will be the audience's bounty, after the live platform and the live platform to share, through the five flexible labor platform to pay labor remuneration. Among them, part of the labor compensation did not declare tax, another part of the labor compensation to convert the nature of the income for the business to reduce the tax burden, and finally the funds will be transferred to Wu's own account or his father's account. Upon inspection by the tax authorities, Wu under-declared the payment of 2019 individual income tax of RMB 2.93 million, which was recognized by the tax authorities as non-declaration of tax and imposed a 50% fine of approximately RMB 1.46 million; Wu transformed the nature of his income to under-declare the payment of 2020 individual income tax of approximately RMB 2.01 million and 2021 individual income tax of approximately RMB 1.61 million through false declarations, which was characterized by the tax authorities as tax evasion and imposed a 50% fine of RMB 1.81 million.

(II) Chongqing cracked a big case of false opening using labor platform, involving more than 2 billion yuan

According to news reports, in September 2022, a Chongqing police task force, in cooperation with tax authorities, cracked a case of massive false invoicing using a flexible labor platform. It was found that between 2019 and 2021, a criminal gang led by Zhang Mou set up more than 20 shell companies in Chongqing, Anhui, Shandong and other places, and used the name of the shell companies to sign false "Internet + Business Contracting Agreement" and "Individual Labor Agreement" with the enterprises and individuals who were subject to the invoices, in order to conceal the criminal facts of the fraudulent VAT invoices, and to illegally profiteer.In more than 2 years, the criminal gang issued more than 4,000 VAT invoices to In more than 2 years, the criminal gang has issued more than 4,000 VAT invoices to more than 900 enterprises nationwide, involving an amount of more than 2 billion yuan. At present, the case is still in the public security investigation stage.

(III) Summary: Flexible labor platforms are prone to tax-related risks

The original purpose of the flexible labor platform is to connect enterprises and freelancers through the platform economy. However, in practice, some flexible labor platforms have assisted their clients in tax evasion or illegal behavior of false invoicing. With the development of tax big data, tax audits are becoming more and more proactive, and the possibility of the outbreak of water-related risks of flexible labor platforms is also getting higher. Accordingly, the author firstly analyzes the mode and characteristics of flexible employment platforms, explains the source of their risks, and then summarizes the business mode with higher tax-related risks and reveals the risks therein.

II. Flexible labor platform business model and structure hide tax-related risks

(I) As an intermediary, it is difficult to audit the authenticity of the labor services.

At present, the main business model of flexible employment platforms is to act as a platform to mediate between enterprises with labor demand and flexible employees or freelancers with work needs. Therefore, the platform actually plays the role of an intermediary. When the volume of business is relatively small, the platform is still able to formally review the contract and supervise the authenticity of the service content; once the business surges, it may not be able to supervise the authenticity of the labor service. Therefore, because the flexible labor platform, as an intermediary, is difficult to audit the authenticity of the business due to the lack of its own capacity, there is a risk of being cheated by the enterprise and falsely invoicing.

(II) It is profitable to levy individual tax on behalf of "business income" or enjoy the approved levy policy

According to the current Individual Income Tax Law and its implementing regulations, salaries and wages and remuneration for labor services belong to the four comprehensive incomes, which are subject to a progressive tax rate of up to 45%, and can only be deducted for some of the statutory special deductions before tax. However, business income is subject to a progressive tax rate of up to 35%, and the costs, expenses and losses incurred in business can be deducted before tax, which makes the tax burden lower compared to the comprehensive income. What makes the tax burden rate of business income even lower is that in order to encourage the development of some places in the past, they implemented the approved income tax and the collection rate is very low, coupled with the fiscal refund policy of value-added tax, the comprehensive tax burden rate is abnormally low. Therefore, some flexible labor platforms, in order to obtain benefits, have information about the parks where such policies are implemented, and carry out planning work for high-income individuals and earn benefits, with the risk of being recognized as helping to evade taxes.

(III) Labor platforms currently lack profitability and help to falsely open or evade taxes for financial gain

The dilemma of flexible labor platforms lies in their lack of sufficient profitability. Since the platform needs to issue invoices in its own name, due to its "intermediary" nature, it can only deduct a very low platform fee from the labor fees paid by the enterprise to the laborers, but it has to issue invoices for all the labor fees paid by the laborers; although the platforms entrusted by the tax bureaus to collect taxes on behalf of the tax bureaus can obtain the cost invoices of the laborers and the handling fees from the tax bureaus, the handling fees are also very low. The handling fee is also strangely low. As a result, some platforms are easily lured by the illegal proceeds such as invoicing fees and eventually commit illegal acts.

To sum up, the tax-related risks of flexible labor platforms mainly stem from the dilemma of their business model, on the basis of which five types of common illegal behaviors have mainly developed.

III. Common illegal risks and consequences of flexible labor platforms

(I) Employment platforms applying the "business income" tax item to help high-income earners "switch the nature of their income"

The so-called conversion of income nature refers to the conversion of income from labor remuneration to business income by natural persons due to the low tax burden of the applicable business income tax item. For labor platforms, since the payment of remuneration for labor services to natural persons is subject to withholding obligations, while the payment of business income is not subject to withholding obligations, they have the incentive to help laborers to convert the nature of their income, for example, by helping them to register as self-employed businessmen.

However, the State Administration of Taxation (SAT), in its Reply to Proposal No. 8765 of the Third Session of the Thirteenth National People's Congress, has proposed that the application of income from business or remuneration for labor to flexible laborers needs to be determined according to the economic substance of the taxpayer's provision of labor services on the platform or engaging in business, and it is not something that can be chosen by the platform or the laborers themselves. Therefore, in practice, some platforms have been penalized by the tax bureau for failing to fulfill their withholding obligations due to errors in the application of the tax law, and "should be withheld but not withheld, should be collected but not collected".

In addition, helping others to evade taxes also carries risks. At the administrative level, Article 98 of the Implementation Rules of the Tax Collection and Administration Law provides that if a tax agent violates the law and causes tax evasion, the taxpayer is liable for the back tax and the agent is subject to a fine of 50% to three times the amount of the tax. If the taxpayer constitutes the crime of tax evasion, the platform constitutes aiding and abetting the crime.

(II) Employment platform for high-income people to enjoy the local approved levy policy in violation of the law

In practice, in order to obtain the so-called planning fees, labor platforms also help high-income groups to register individual businesses or sole proprietorships in places where they enjoy the approved levy and financial rebates. Sometimes, high-income individuals do not belong to the scope of local tax incentives, and the platforms also illegally enjoy the local approved policies by means of forging tax information, splitting income, and yin and yang contracts. In other cases, because the individual's income is too much and exceeds the approved tax standard, some platforms will also help him or her to split his or her income, register multiple individual households and sole proprietorship enterprises in multiple places for him or her, and split his or her income to enjoy tax incentives respectively. As mentioned above, this behavior of the taxpayer is tax evasion, and the platform constitutes helping tax evasion.

(III) Enterprises attaching employees to labor platforms to evade personal tax withholding obligations and social security

In addition to helping high-income individuals evade taxes, flexible labor platforms can also help enterprises evade taxes. Since enterprises need to bear the withholding obligation of employees' wages and social insurance, some enterprises, in order to avoid this expenditure, will force their employees to register as self-employed or directly attach themselves to the platform to work for the enterprise in the name of providing labor services, and finally issue labor fees to evade the payment of social insurance and withholding obligation. At the same time, the enterprise can also obtain the cost ticket issued by the platform for cost deduction, and in some cases, it will also ask for special invoices to offset the inputs.

(IV) Enterprises fraudulently obtain false invoices from flexible labor platforms through false labor contracts

In addition to the risk of tax evasion, another major risk of flexible labor platforms is the risk of false invoicing. In the so-called tax planning for enterprises or high-income individuals, the platform will register enterprises, individual households or sole proprietorships for clients in places that enjoy fiscal rebates or approved income tax collection.

Specifically, the business model is: if the client is an enterprise, the platform will register a wholly-owned subsidiary for the enterprise in the park, and the platform will control all the financial and tax work of the subsidiary, issue invoices according to the client's instructions, enjoy the local financial rebate, and extract profits from it. If the client is an individual, as mentioned earlier, it registers him or her as an individual or or as a sole proprietor and enjoys personal tax benefits.

In this case, if the customer instructs the platform to issue false invoices to the outside world, as the platform cannot audit the authenticity of the business, it can only operate subsidiaries or individual households to issue invoices, and when the risk of false invoicing breaks out, the flexible labor platform will easily be recognized as an invoicing platform controlling dozens of shell enterprises.

(Ⅴ) Some flexible labor platforms falsely issue invoices for others in order to earn benefits such as invoicing fees

The above situation is that the flexible labor platform is deceived by the customer, in the absence of subjective intent to external invoicing, is still good faith. However, in practice, there are some platforms that use the enterprises under their control for the sake of profit, and such invoicing platforms have been investigated and dealt with.

From the above five categories of high-risk tax-related business can be seen, flexible labor platform must strengthen the compliance construction, otherwise with its platform volume, once the outbreak of tax-related risks, will involve a very wide range of invoiced enterprises, the person in charge of the platform is also facing a very high criminal risk.

Ⅳ. Tax Compliance and Healthy Development of Flexible Employment Platforms

(I) Individual income tax collection: communicating with tax authorities on applicable tax items and accurate collection on behalf of employees

It is difficult to differentiate between labor compensation income and business income in practice. For this reason, when withholding personal tax, the platform should actively contact and communicate with the tax authorities, and request the tax authorities to make a "pre-judgment" on some matters of the application of the tax law, so as to ensure that one type of labor service is collected or withheld on behalf of the platform by one standard. For example, whether the live broadcasting service of webcasters, the transportation service of drivers, and the teaching service of lecturers can be applied to the tax item of business income after the establishment of individual industrial and commercial enterprises, or whether they have to withhold and pay as remuneration for labor services, the tax authorities need to make a judgment.

(II) Personal income tax planning: accurately clarifying the nature of income and refusing to split income to evade tax

In order to allow high-income people to enjoy low tax benefits, some flexible labor platforms will take the approach of splitting income and switching the nature of income to evade tax. With the full implementation of "tax by numbers", self-employed businessmen and sole proprietors have become the focus of attention, and the risk is very high. Therefore, the platform can carry out compliant tax declaration activities for individuals, such as looking for tax-preferential areas and registering companies and sole proprietorships for individuals, but ensuring the authenticity and legality of the business, and if the sales exceed the general taxpayer's standard, promptly applying for the registration of general taxpayers for the individual and changing the authorized levy to the checking of accounts levy.

(III) In respect of invoicing by the platform: auditing and retaining all information on labor services to ensure the authenticity of the business

As the flexible labor platform needs to issue a large number of labor invoices to enterprises, it should audit and retain all information on labor services to ensure the authenticity of the business. Firstly, it should audit whether the information on the service content, service period and price on the labor contract is consistent with the content, period and price of the actual labor services provided; secondly, it should require the enterprises or laborers to provide evidence of the content of the labor services or profile information; and thirdly, it should carry out tax self-inspection on a regular basis, and if irregularities are found, it should be reported to the tax authorities in a timely manner. These measures can prove that the platform is bona fide in its invoicing activities and is not intentionally falsely invoicing in order to avoid criminal risks.

(IV) Actively broaden profit channels and strengthen tax compliance, so as not to trigger criminal risks for the sake of profits

In the final analysis, the reason why flexible labor platforms repeatedly fall into the risk of false invoicing and tax evasion lies in the fact that the business itself has thin profits and needs to rely on the scale effect. We suggest that platforms should seek a way out within the scope of compliance, such as expanding their scale through merger and reorganization, and making profits through advertising on the platform, etc., rather than facing criminal sanctions for the benefit of false invoicing.