Recently, the employee shareholding platform "company into a partnership" was recovered 2.5 billion yuan of tax caused widespread concern. The initial intention of building a shareholding platform is to enjoy local tax incentives to save tax while maintaining the stability of the shareholding of listed companies, but with the precise focus of individual tax regulation on high-income groups, the local illegal tax approval and financial return policy of extensive and in-depth cleanup, the listed companies have to dismantle all kinds of shareholding platform. In this paper, we would like to make a reminder of the four major tax-related risks of listed companies' dismantling of shareholding platforms, and taxpayers should take this as a precautionary measure.

I. The tax advantage is no longer available, and the shareholding platform is repeatedly dismantled by listed companies

Since the Opinions on Further Deepening the Reform of Tax Levy and Administration explicitly require "strengthening tax services and supervision for high-income and high-net-worth individuals in accordance with the law, and focusing on preventing and controlling the use of 'tax pits' and other tax evasion behaviors," the field of equity transfer of high-income people has become a key area of tax supervision focus and investigation of tax-related violations. has become a key area where tax supervision focuses on and tax-related violations are investigated and dealt with.

(I) Non-transaction transfer of shares by shareholders of a proposed listed company, inquired by the SSE about tax risks

On December 31, 2021, CRS announced that its shareholders, Changchun Jielun and Jinzheng Investment, had completed the non-transaction transfer of securities and obtained the Confirmation of Registration of Securities Transfer on December 28, 2021. on September 9, 2022, CRS submitted the filing materials for the initial public offering of shares and listing on the Kechuan Board to SSE. Later, it received an inquiry letter from the SSE for the review of the application documents, requesting the Issuer to explain the business and operation of Changchun Jielun and Jinzheng Investment since their establishment, to explain the reasons for and considerations regarding the transfer of shares to the original shareholders one after another and the cancellation of the shares from 2021 onwards, and to provide a response on the payment of taxes in relation to the transfer of the shareholdings and whether there are any tax-related risks.

(II) Non-transactional transfer of shares and audit of over RMB100 million in back tax after corporate tax clearance and cancellation

In June 2020, all 13 million shares of a listed company held by Company A were released. In August of that year, a tax planning organization proposed to Company A to relocate to City B to apply the preferential policy of approved levy to reduce the tax burden of the planning program. According to the planning program, shortly after Company A moved to City B, it decided to terminate the operation of the company, and the remaining property after liquidation was distributed in accordance with the proportion of shareholders' contributions. On January 25, 2021, Company A transferred all 13 million shares of listed company stock held by Company A to A, a natural person shareholder.

On March 1, 2021, the tax authorities issued a Notice of Tax Matters stating that Company A declared to pay enterprise income tax from January 1 to December 31, 2021 in accordance with the approved collection method, with a taxable income rate of 10%. on March 29, Company A obtained a Certificate of Tax Clearance. on April 15, Company A was written off.

In July 2022, a tax authority in City B issued a Notice of Tax Matters, ordering A to pay Company A's unpaid enterprise income tax of RMB1,095,250,000 for the year 2021 and a late fee.

(III) See 14 more listed companies dismantling their shareholding platforms

In less than three months since the start of 2023, shareholders of 14 listed companies have made non-transactional transfers of their shares to dismantle their indirect shareholding structure and revert to direct shareholding by shareholders.

II. Common ways for listed companies to dismantle their shareholding platforms

(I) Utilizing the loopholes in personal tax collection and management to reduce holdings in other places

In practice, some places still have the problem of unrelated information and poor communication between tax authorities and China Securities Depository and Clearing Corporation, and some tax-related intermediaries make use of such information asymmetry to propose to listed companies to relocate their shareholding platforms to off-site planning programs, thus taking advantage of the differences in tax policies on equity transfers to realize the tax-saving benefits. For example, some localities provide enterprises with tax incentives such as authorized levy and financial rebates for the purpose of attracting investments and expanding tax sources, which in fact become "tax depressions", and enterprises with shareholding platforms are able to substantially reduce their tax burden by reducing their shareholdings in the localities. The artificial separation between the shareholding platform and the location of the listed company makes it not easy to find out the problems in the tax-related materials issued by the relevant departments when the shareholding platform is dissolved and liquidated or when the listed company is IPO, without the implementation of substantive audits of the relevant materials.

(II) Reduction of tax burden through non-transaction transfer of shares

Due to the successive cancellation of the approved levy policy for corporate-type and partnership-type shareholding platforms and the clean-up of preferential policies such as fiscal rebates in various regions, direct shareholding by individuals has instead shown tax advantages due to its preferential treatment in capital gains income tax and value-added tax.2022 Since 2022, the shareholders of listed companies have taken advantage of the dissolution and liquidation of the enterprises to transfer their shares non-traded to the original shareholders or partners to realize the transition from indirect shareholding to direct shareholding by natural persons. transition.

In accordance with the provisions of Article 13 and Article 27(2) of the Business Guidelines for Non-Trading Transfer of Securities of China Securities Depository & Clearing Company Limited, Shenzhen Branch (2022), the non-trading transfer segment requires the applicant to provide proof of completion of individual income tax only if the shares to be transferred belong to the taxable scope specified in the relevant notice on the individual income tax on income from transfer of listed company's shares under restricted sale by an individual. In the case of non-transactional transfers by shareholding platform enterprises, the applicant is not required to submit the relevant tax-related information on individual income tax, and can also obtain the Confirmation of Registration of Securities Transfers. In practice, there is no lack of taxpayers who believe that non-transaction transfer is only the resumption of shareholding by natural persons, and the taxpayers do not obtain cash proceeds in the whole business, and should not bear the tax obligation of individual income tax, which leads to underpayment of tax due to the deviation in the understanding of tax policy.

(III) Simplified write-off to evade tax obligations

According to the "Guidelines on Enterprise Write-off (Revised in 2021)" on the registration of write-offs, market entities that meet the requirements of not having debts and liabilities such as unsettled liquidation expenses, employees' wages, social insurance costs, statutory compensation, payable taxes (late payment fees, fines), and do not have other circumstances that are not applicable to the registration of simplified write-offs of enterprises, they can apply for simplified write-offs directly to the market supervision department and do not have to go to the tax authorities to It is not necessary to go to the tax department to apply for a tax clearance certificate. However, the market supervision department shall handle the simple deregistration without objection from the tax department. In other words, the shareholding platform should have declared the tax on its non-transaction transfer business, which is categorized as the case of tax clearance procedures such as payment of invoices, settlement of tax payable, and so on, to realize the simplified deregistration. The tax risk is extremely high for those who utilize a platform that has not owed any tax during its operation and has not received any invoices, etc., and who have not declared their non-transactional transactions but have directly written off their shares in a simplified manner.

III. Four major tax risks for listed companies dismantling shareholding platforms

(I) Tightening of space for the application of authorized levy

On the one hand, the Announcement of the State Administration of Taxation on Relevant Issues Concerning the Approved Collection of Enterprise Income Tax (SAT Announcement No. 27 of 2012) and the Announcement of the Ministry of Finance and the State Administration of Taxation on the Administration of the Collection of Individual Income Taxes on the Income from Equity Investments (MOF and SAT Announcement No. 41 of 2021) have made it clear that the enterprises specializing in equity (stock) investment, sole proprietorship enterprises and partnership enterprises holding equity, stocks, partnership property shares and other equity investments shall not be subject to the approved collection of tax. , stocks, partnership property shares and other equity investments of individual sole proprietorships and partnerships shall not be subject to approved taxation. At the same time, the illegal tax approval and local financial rebate policies have been further cleaned up nationwide, and the tax-saving plan of utilizing tax depressions to set up company-type and partnership-type shareholding platforms has fallen through, and the platform shareholding may even lead to a rise in tax burden instead of a decrease.

On the other hand, the dismantling of a shareholding platform is essentially the dissolution and liquidation of the platform enterprise. According to Article 53 and Article 55 of the Enterprise Income Tax Law and Article 1 of the Circular of the State Administration of Taxation on Relevant Issues of Income Tax on Enterprise Liquidation (Guo Shui Han [2009] No. 684), an enterprise terminates its operation in the middle of a taxable year, and takes the date of the commencement of liquidation as the boundary, and legally formulates two taxable periods of the current period of operation and the period of liquidation, and the enterprise shall declare and pay the enterprise income tax in respect of the two taxable periods respectively. Enterprises should declare and pay enterprise income tax for the two tax periods separately. Since the two tax periods are independent of each other, even if the approved levy policy has been obtained during the operation period, its binding force is not certainly applicable to the liquidation period. For example, Liaoning, Hainan and other places have issued enterprise income tax management measures to clarify that enterprise income tax is in principle levied by way of checking accounts during the liquidation period. Unless the enterprise is otherwise eligible for the approved levy during the liquidation period to apply for the approved levy application and or approval, the dissolution and liquidation of the enterprise will be non-transaction transfer of shares to its shareholders or partners, the calculation of the payment of enterprise income tax shall not be subject to the approved levy.

(II) Past transactions facing tax adjustments

According to the current tax law, different shareholding entities have different tax obligations in the equity transfer segment and bear different tax liabilities. For the transfer of shares of listed companies, according to the Provisions on Individual Income Tax Levied on Investors of Sole Proprietorship Enterprises and Partnership Enterprises (Cai Shui [2000] No. 91) and the Circular of the State Administration of Taxation on the Caliber of Execution of the Provisions on Individual Income Tax Levied on Investors of Sole Proprietorship Enterprises and Partnership Enterprises (Guoshuai Han [2001] No. 84), for transfer of shares by partnership enterprises, individual partners should pay individual income tax at a rate of 5%-35% according to business income. If the company's stock appreciates significantly after listing, it is often required to apply the highest tax rate of 35%, in addition to 6% value-added tax and stamp duty calculated at 1 per thousand. The VAT and stamp duty tax burden is the same as that of a partnership, except for the transfer of shares by a corporate enterprise, which is subject to 25% corporate income tax. Individual shareholders, on the other hand, are subject to personal income tax at 20%, and at the same time are exempted from VAT and bear stamp duty at a reduced rate of 50%. Especially after the introduction of Announcement No. 41, the advantage of applying the approved levy for partnerships to significantly reduce the tax burden has disappeared, and the tax advantage of individual direct shareholding has been highlighted, and listed companies have dismantled their shareholding platforms. With the abuse of the approved levy policy being widely noticed by the tax authorities, some localities intend to make retrospective adjustments to shareholding transactions prior to the issuance of the Announcement.

(III) Tax authorities in many places asserting taxing rights

Under some investment structures, shareholding platforms are built in a multi-layer nested partnership mode, and when each partnership is set up in different places of incorporation, tax enterprises may have disputes over the determination of the tax location of the partners. According to Article 20 of the Provisions on Individual Income Tax on Investors in Sole Proprietorship Enterprises and Partnership Enterprises, "The production and operation income obtained by an investor from a partnership enterprise shall be declared by the partnership enterprise to the competent tax authorities in the place where the enterprise is actually operated and managed for the payment of the individual income tax payable by the investor, and a copy of the individual income tax return shall be sent to the investor. " It is clear from this provision that the taxpayer is separated from the filer, but it is not clear which partnership fulfills the filing obligation. As a result, when a partnership enterprise fails to fulfill its declaration obligation according to the law, and the tax authorities have not coordinated the tax collection right in advance, the competent tax authorities of the place where the actual operation and management of the partnership enterprises are located may not only shift the responsibility to each other, but also neglect to collect the tax; and may also claim the partners to pay back the tax, which will result in the risk of multiple tax collection.

(IV) Requirement of shareholders/partners to fulfill their tax obligations under the "pass-through" platform

Through the non-transactional transfer of shares, the removal of the shareholding platform is restored to the direct shareholding of natural persons, which is a change of the ownership of shares among different subjects, and should be treated as a "transfer" in the tax law. Failure of the taxpayer to fulfill the tax obligation will result in the loss of state tax.

For partnership-type shareholding platform, the tax obligation of share transfer transaction itself "penetrates" to the individual partners, regardless of whether the partnership has been dissolved and canceled, the tax authorities should have directly recovered the individual income tax from the partners. The gratuitous transfer of shares of listed companies from a partnership to a partner should be treated as a sale and subject to value-added tax. If the partnership fails to fulfill this tax obligation during its existence, the tax authority may require the partners to bear unlimited joint and several liability for the tax owed by the partnership before its cancellation.

For corporate shareholding platforms, if the individual shareholders have abused the independent status of the company and limited liability of the shareholders to the detriment of the interests of the company, its shareholders and creditors, failed to make capital contributions, failed to fully fulfill the obligations of capital contributions or absconded with the capital contributions, as well as the shareholders have failed to perform or failed to perform the liquidation procedures in accordance with the "Provisions on Several Issues Concerning the Application of Company Law of the PRC (II)" by the Supreme People's Court. >Provisions of the Supreme People's Court on the Application of the Company Law of the People's Republic of China on Certain Issues (II)", the tax authorities may claim denial of legal personality for fraudulent deregistration, pierce the corporate veil, and require the individual shareholders to bear the corresponding liability for the company's unpaid taxes and late payment fees. Individual shareholders who are unable to pay the taxes and late fees may also be held criminally liable.

IV. Dispute resolution of dismantling of shareholding platforms by listed companies

(I) Grasp the tax policy of dismantling the shareholding platform and fulfill the tax obligations in accordance with the law

With the active development of the capital market, it is not uncommon for high-income people to use companies and partnerships to design equity structures and obtain tax-saving benefits from them. since the introduction of Circular 41, the removal of shareholding platforms in the form of non-transactional transfers has become quite popular. However, due to the numerous and complex tax policies related to equity transfer, it is very easy to cause tax disputes. Taxpayers should firstly recognize that non-transaction transfer is indeed an equity transfer, and then deeply understand and grasp the requirements and restrictions of equity transfer in terms of transaction price, recognition of original value, tax declaration and collection management, etc., so as to avoid taking tax risks due to gullible faith in tax financing solutions provided by intermediaries.

Taxpayers should be reminded that the dismantling of the shareholding platform inevitably involves the registration of industrial and commercial changes of equity, and with the gradual establishment and improvement of the data linkage and information sharing mechanism between the market supervision department and the tax department and the improvement of the tax big data supervisory system, the collaborative law enforcement and intelligent supervision play an important role in the discovery and aggregation of tax-related risk clues for the transfer of equity, and the taxpayers should fully weigh the tax risks and correctly fulfill their tax obligations or withholding obligations. tax obligations or withholding obligations.

(II) Actively communicate with tax authorities to avoid retroactive adjustment of past transactions

In practice, most enterprises believe that non-trading transfer of shares does not involve exchange of money, services or value in consideration of other economic benefits, and is not a transfer of equity and should not give rise to tax obligations. Taxpayers should consult the local tax authorities in advance on the tax treatment of stock non-trading transfers to understand the correct way of tax treatment and to fully access the implementation differences in different places in terms of the conditions of application of tax incentives, the scope of application, and the period of application in order to strive for a level of tax liability in favor of the taxpayer.

In particular, in the case where the dismantling of the shareholding platform for the application of the approved levy policy or the granting of other tax incentives to the platform has been recognized by the tax authorities, the taxpayers should obtain written certificates issued by the competent tax authorities in respect of the determined taxable income rate and the corresponding tax rate, etc., in order to prevent the established level of tax liabilities from being adjusted retrospectively.

For the shareholding platform has been liquidated and written off, and the tax authorities have made tax adjustments to the corresponding business, the taxpayer may invoke that it has obtained the Certificate of No Tax Arrears and Certificate of Tax Clearance issued by the tax authorities to claim that it enjoys reliance on the results of the approved levy or other tax concessions, and that the tax authorities cannot arbitrarily make adjustments.

(III) Focusing on the economic substance of the business to avoid being double taxed

In the case of a partnership-type shareholding platform, for example, a partner's recovery of investment or withdrawal from the partnership is usually by way of transfer of partnership shares or dissolution of the partnership. Regardless of which method is adopted, the business income obtained by the partnership enterprise will be penetrated to the partners who will be responsible for the income tax obligations, i.e., monthly or quarterly prepayment and annual remittance of individual income tax.

In the case of dissolution and liquidation of a partnership, the liquidation income includes the portion of the paid-in capital exceeding the fair value of all assets or properties of the enterprise after deducting the liquidation expenses, losses, liabilities, and retained profits of previous years, and in order to avoid the duplication of tax bases, the tax-paid profits under the "first share, then tax" rule shall be treated as taxable profits at the time of liquidation, regardless of whether they have been actually distributed to the partners or not. In order to avoid duplication of tax bases, the tax-paid profits under the "divide first, tax later" rule, regardless of whether they are actually distributed to the partners or not, shall be treated as a deduction in the liquidation.

In the case of transfer of partnership shares by partners, the undistributed profits of previous years are included in the transfer income in equal amount and reflected in the pricing, but the deductions for partners are only the paid-up capital at the time of acquisition of partnership shares, which means that the income from undistributed profits is subject to the risk of double taxation when the partnership shares are transferred. Therefore, the transferor may emphasize the economic substance of the business and raise defenses around double taxation.

(Ⅳ) Aggressive statement of defense to prevent arbitrary "penetration" by tax authorities

As mentioned above, for the dissolution and liquidation of a corporate shareholding platform, where there are unpaid taxes and late payment fees, the tax authorities may pass on the unpaid tax liability to the shareholders. On the one hand, the shareholders, as the liquidation obligor, should pay attention to reviewing whether they have fulfilled their tax obligations in accordance with the law during the operation period. On the other hand, for the tax authorities' audit to recover the tax owed by the platform to the shareholders, the shareholders should actively exercise the right of representation and defense, and claim that the non-criminal liability, non-statutory circumstances and non-litigation procedures will not be transmitted to the shareholders, so as to avoid the transmission of tax liabilities to the shareholders after the enterprise's cancellation.