Liu Tianyong, the director of Hwuason Law Firm, accepted an invitation from China Taxation News to write an article titled "Internet Platform Enterprises: Understanding the Significance of Balancing Development and Regulation." The article was published in the Taxation Service Special Edition of China Taxation News on February 18, 2022, Page B1. The full text is reproduced below:

Internet Platform Enterprises: Understanding the Deep Significance of "Balancing Development and Regulation"

Liu Tianyong

Recently, several departments including the National Development and Reform Commission, the State Administration for Market Regulation, the Cyberspace Administration of China, and the State Taxation Administration jointly issued the "Several Opinions on Promoting the Standardized, Healthy, and Sustainable Development of the Platform Economy," which has attracted widespread attention. The "Opinions" adhere to the principle of balancing development and regulation, unwaveringly adhering to "two unwavering," and creating a favorable policy environment for the standardized, healthy, and sustainable development of the platform economy.

The combination of the internet and traditional industries is an important trend in the era of the digital economy. With the characteristics of internet security, high speed, real-time, transparency, and traceability, a large number of traditional industries have rejuvenated. In the process of integrating with traditional industries, China has also produced a group of internet platforms with rapid development and strong influence. However, at the same time, some shortcomings and problems have been exposed, and insufficient tax compliance is one of them.

Specifically, three types of internet platforms—online freight transportation, flexible employment, and internet financial and tax agency—have been active and representative in recent years. However, in 2021, some noteworthy tax-related cases occurred in these three areas. For example, the S online freight transportation platform was investigated by tax and public security departments for suspected illegal activities such as false issuance of invoices, false waybills, false consignments, and false deductions due to the lack of real transportation services, leading to the suspension of its business; B Technology Company, an enterprise providing "one-stop flexible employment platform" services, was investigated by the public security department for suspected tax evasion involving an amount as high as 1.3 billion yuan through false issuance of VAT special invoices; D financial and tax agency platform was sealed off by the public security department and relevant personnel were subject to criminal coercive measures due to suspected issuance of a large number of false invoices.

In-depth analysis of these tax-related cases reveals that the main reason for the occurrence of risks is the insufficient tax compliance awareness and capabilities of the relevant platform enterprises. They fail to accurately grasp the scale and boundaries of legal operation, and even harbor a sense of luck. In pursuit of short-term benefits, they engage in illegal activities. This not only results in corresponding penalties for the platforms themselves but also affects downstream related enterprises and individuals in the industry chain, bringing adverse effects on the industry's sustained and healthy development.

As an emerging industry, internet platform enterprises, in the early stage of development, faced a relatively loose regulatory environment due to the new model characteristics and transaction features of the industry, as well as objective factors such as lagging regulations and regulatory measures. However, as internet platforms increasingly impact social and economic development and people's daily lives, the country attaches more importance to their standardized, healthy, and sustainable development. Recently, the "Several Opinions on Promoting the Standardized, Healthy, and Sustainable Development of the Platform Economy" jointly issued by the National Development and Reform Commission, the State Administration for Market Regulation, the State Taxation Administration, and other departments clearly stated the principle of balancing development and regulation, improving and perfecting relevant rules and systems for the platform economy, and enhancing regulatory capabilities and levels.

In this context, the author reminds relevant internet platform enterprises to "learn from the cases," proactively follow and grasp the trend and orientation of the country's "improving rules, strengthening supervision, and optimizing the environment," effectively enhance tax compliance awareness, fill in the gaps in tax management, and ensure the platform business sets sail with strong tax compliance capabilities.

First, they should regard the authenticity of business operations as the top priority of tax compliance. Although internet platforms have innovated transaction methods, the fundamental production relations have not changed. The authenticity of business operations is a basic principle that relevant enterprises must adhere to. For online freight transportation platforms, they should better ensure the authenticity of business operations, verifying the qualifications and compliance of vehicles entering the platform, ensuring consistency between the registered vehicle and driver, and paying attention to the authenticity and relevance of fuel and toll invoices provided by individual drivers. In addition, they should strictly follow tax policies to issue invoices on behalf of individual drivers. For flexible employment platforms, they should ensure the authenticity of the identity of freelancers on the platform, confirm that there is no labor relationship with the employing unit, and ensure that the labor remuneration is actually paid to the bank account of the freelancer, avoiding agency collection as much as possible. Financial and tax agency platforms should ensure that the customers they serve register as individual businesses based on their true intentions and avoid managing tax control devices, conveying invoice instructions, and mailing invoices on their behalf.

Second, they should minimize cash or private account transactions and block "fund inflows." Generally, the reasons for the "fund inflows" of internet platforms are that cash or private account transfers are adopted for settlement in transactions such as transportation and labor services to avoid situations such as duplicate payments. These transactions are usually based on real business. However, analyzing the above cases reveals that once "fund inflows" occur, the probability of determining false invoices increases. Therefore, to prevent risks from the source, internet platforms and their users should enhance compliance awareness, minimize cash or private account transactions, and block "fund inflows" as much as possible.

Additionally, they should establish a complete "chain of evidence" through business materials and expenditure vouchers. For online freight transportation platforms, it is necessary to retain transfer vouchers for paying freight to individual drivers, copies of individual drivers' IDs, and copies of bank cards. They should also record information such as the origin and destination of transportation operations, as well as the goods being transported, and have the drivers sign and confirm this information. For flexible employment platform enterprises, if directly paying small labor service fees to individuals, they should retain self-made payment vouchers containing relevant information such as the recipient's name, ID number, contact information, expenditure details, and payment amount. If the recipient is an individual and the amount is significant, they should request the issuance of an invoice and retain documents such as contracts, bank transfer vouchers, personal work records, and work results. By promptly collecting and retaining these relevant materials, a complete chain of evidence can be constructed to better ensure the compliance of their own business operations.

Location: China Taxation News ~ Taxation News Edition 05