Editor's Note: In the actual operation of private equity funds, transferring unpaid partnership interests to new partners at zero price is a common commercial arrangement. However, such "zero-price transfers" may trigger tax assessment risks. Starting from the legal nature of subscribed but unpaid interests, this article demonstrates that, under the premise that the partnership agreement explicitly stipulates that only partners with paid-in capital enjoy rights and interests, the fair value of subscribed but unpaid interests is zero, and a zero-price transfer has sufficient legitimate reasons; therefore, the tax authority should not levy corporate income tax. Meanwhile, this article sorts out the legal boundaries of the tax authority's assessment power and reminds enterprises of the risk scenarios that need to be vigilant about when conducting such transactions.

I. Background: Tax Law Disputes over Corporate Partners' Zero-Price Transfer of Subscribed Private Fund Interests

Take a typical transaction as an example: a private equity investment fund (limited partnership) has a total subscribed capital of RMB 1 billion. Enterprise A, as a limited partner, subscribed RMB 500 million, of which RMB 100 million has been paid in, and the remaining RMB 400 million cannot be further paid in due to its own financial pressure. To maintain the fund's fundraising scale and investment progress, the fund manager (general partner) separately recruits a new limited partner B, who undertakes the obligation to pay RMB 400 million to the partnership enterprise after the transfer. After negotiation between the two parties, Enterprise A transfers its unpaid RMB 400 million interest—which does not enjoy any rights or interests in the partnership enterprise—to B at a price of RMB 0.

The key to this transaction arrangement lies in the stipulations of the partnership agreement. The fund's partnership agreement explicitly provides: "Partners enjoy the right to income distribution and the right to residual property distribution in proportion to their paid-in capital; the subscribed but unpaid capital contribution portion does not enjoy any rights or interests in the partnership enterprise." In addition, the partnership agreement also explicitly stipulates that "if a limited partner fails to pay the capital contribution in full on time, the general partner has the right to forcibly reduce the capital or require the limited partner to transfer the unpaid interest." This means that Enterprise A's subscribed but unpaid RMB 400 million interest, at the time of transfer, neither corresponds to the existing property rights and interests of the partnership enterprise nor enjoys the right to income distribution. What Enterprise A essentially transfers is the RMB 400 million capital contribution obligation and the qualification to obtain corresponding partnership rights and interests after payment, rather than existing property rights.

From the enterprise's perspective, the zero-price pricing reflects the true value of the subscribed but unpaid interest. However, the tax authority's perspective may be entirely different: if the underlying investment of the partnership enterprise has generated unrealized gains and the net asset scale is considerable, the tax authority may determine that the zero-price transfer price is significantly low, and then assess Enterprise A's transfer income according to the formula of "partnership enterprise net assets × subscription ratio." Assuming the fund's net assets are RMB 1 billion, the RMB 400 million subscribed interest accounts for 40% of the total subscribed scale, and the corresponding assessed income may be as high as RMB 400 million. The corporate income tax burden calculated at a 25% tax rate may reach RMB 100 million, but in reality, Enterprise A has not received any transfer consideration, yet may face a huge tax obligation.

Pricing subscribed but unpaid interests at zero is not an isolated phenomenon. Multiple listed companies, including Meijin Energy, Fosun Pharma, Yonyou Network, and Huapei Shuneng, have disclosed similar transactions. In these similar transactions, whether the tax authority has the right to assess the transfer income according to "partnership enterprise net assets × subscription ratio" and thereby levy corporate income tax is worthy of study.

II. Legal Nature and Tax Law Application of Subscribed but Unpaid Partnership Interests

The partnership agreement may stipulate that only partners with paid-in capital enjoy rights and interests. The private fund field also has explicit provisions in this regard, and partners holding subscribed but unpaid interests actually do not enjoy partnership enterprise rights and interests.

(1) The Partnership Agreement May Stipulate That Only Partners with Paid-in Capital Enjoy Rights and Interests

Article 33 of the Partnership Enterprise Law stipulates: "The profit distribution and loss sharing of a partnership enterprise shall be handled in accordance with the stipulations of the partnership agreement; where the partnership agreement does not stipulate or the stipulation is unclear, the partners shall decide through negotiation; if negotiation fails, the partners shall distribute and share in proportion to their paid-in capital contributions; if the capital contribution ratio cannot be determined, the partners shall distribute and share equally." It can be seen from this provision that stipulating in the partnership agreement that "only partners with paid-in capital enjoy the right to income distribution" fully complies with the law. Moreover, even without such stipulation, the law itself provides for profit distribution and loss sharing in proportion to paid-in capital contributions. Meanwhile, Paragraph 2 of Article 33 stipulates that "the partnership agreement may not stipulate that all profits be distributed to some partners or that all losses be borne by some partners," which is a restrictive provision on partnership agreement stipulations. However, "only partners with paid-in capital enjoy the right to income distribution" is not a stipulation that all profits be distributed to some partners, and thus does not violate this prohibitive provision.

Analyzed from the perspective of legal nature, a subscribed but unpaid partnership interest contains two dimensions: first, the obligation to pay capital contributions to the partnership enterprise; second, the expectant right to obtain corresponding partnership rights and interests after fulfilling the capital contribution obligation. Before the completion of payment, the partner does not enjoy existing property rights and interests in the partnership enterprise, but instead bears the legal obligation to pay the capital contribution in full and on time. Article 88 of the Company Law, which came into effect on July 1, 2024, further confirms the "obligation" attribute of subscribed interests at the legal level: "Where a shareholder transfers equity for which capital contribution has been subscribed but the payment deadline has not yet arrived, the transferee shall bear the obligation to pay such capital contribution." Although this provision applies to company equity, the legal principle it embodies—that "a subscribed interest carries a capital contribution obligation rather than property rights"—is shared with partnership enterprise interests.

(2) In the Private Fund Field, Partnership Agreements May Stipulate That Subscribed Interests Do Not Enjoy Income Distribution Rights

A partnership interest is a composite right, containing two dimensions: management rights and property rights. Management rights are reflected in the right to participate in partners' meeting voting, inspect account books, supervise the execution of partnership affairs, and other rights; property rights are reflected in economic rights such as the right to income distribution and the right to residual property distribution. In a limited partnership private fund, according to Article 68 of the Partnership Enterprise Law, a limited partner does not execute partnership affairs and may not represent the limited partnership enterprise externally. Daily management and investment decisions are the responsibility of the general partner (fund manager). This institutional arrangement means that the core of a limited partner's rights is property rights rather than management rights.

The enjoyment of property rights is directly linked to paid-in capital contributions. Article 11 of the Regulations on the Supervision and Administration of Private Investment Funds stipulates that a private fund manager shall "determine the private fund income distribution plan in accordance with the fund contract and distribute income to investors," which means that income distribution is stipulated by the fund contract (partnership agreement). From the operational practice of private funds, partnership agreements generally stipulate income distribution in proportion to paid-in capital contributions. For example, the partnership agreement of Zhengjiang Qianfan (Jiaxing) Equity Investment Partnership Enterprise, disclosed in the announcement of Nandu Property (603506) on May 20, 2026 (Announcement No.: 2026-022), stipulates that income distribution "shall first be distributed to all partners in proportion to their paid-in capital contributions, until the cumulative distribution amount to all partners equals their cumulative paid-in capital contributions paid to the partnership enterprise at that time"; the partnership agreement of Xiamen Huaben Qihang Equity Investment Partnership Enterprise, disclosed in the announcement of Zhejiang Medicine (600216) on March 10, 2026 (Announcement No.: 2026-006), stipulates that in the "all partners' paid-in capital recovery distribution" stage, "distribution among partners shall be in proportion to their paid-in capital contributions," and subsequent income shall be "distributed to all partners at 97% in proportion to paid-in capital contributions." The above income distribution clauses indicate that private fund partnership agreements generally adopt a distribution structure of "first returning paid-in capital, then distributing preferred returns, and finally distributing excess returns," and the distribution ratio is based on the "paid-in capital contribution ratio," while subscribed but unpaid portions do not participate in income distribution.

(3) The Zero-Price Consideration for Corporate Partners' Transfer of Subscribed but Unpaid Interests Conforms to Fair Value

There are corresponding legal provisions for corporate partners' transfer of subscribed but unpaid interests. According to Article 2 of the Notice of the Ministry of Finance and the State Administration of Taxation on Income Tax Issues Concerning Partners of Partnership Enterprises (Cai Shui [2008] No. 159), each partner of a partnership enterprise is a taxpayer; where the partner is a legal person or other organization, it shall pay corporate income tax. According to Article 6 of the Corporate Income Tax Law, income from the transfer of property is included in total income; Article 13 of the Regulations for the Implementation of the Corporate Income Tax Law stipulates that income obtained in non-monetary forms shall be determined at fair value. Regarding the tax basis, Article 71 of the Regulations for the Implementation of the Corporate Income Tax Law stipulates that for investment assets obtained through cash payment, the cost is the purchase price, and when an enterprise transfers or disposes of investment assets, the cost of the investment assets is allowed to be deducted. From the above, it can be concluded that the corporate income tax calculation logic is "the balance after deducting the tax basis from the transfer income is the taxable income," in which the transfer income should in principle be recognized according to the price actually agreed by both parties to the transaction. Whether the zero price is recognized depends on whether the price reflects the true fair value of the underlying interest, not on whether the tax basis is zero.

Therefore, whether a corporate partner pays tax when transferring an interest, the core dispute lies in whether the zero price is fair value. In the foregoing legal nature analysis, it has been clarified that before the completion of payment, a subscribed but unpaid partnership interest neither enjoys property rights such as the right to income distribution and the right to residual property distribution, nor enjoys management rights such as voting rights linked to paid-in capital contributions. It only bears the legal obligation to pay the capital contribution in full and on time. For a rational market participant, acquiring such an interest that only carries a capital contribution obligation and does not enjoy existing rights and interests would not involve paying any consideration. The fair value of a subscribed but unpaid interest can be recognized as zero.

Returning to the case introduced at the beginning, since the fair value of the subscribed but unpaid interest is zero, Enterprise A's income from the zero-price transfer is zero. Meanwhile, Enterprise A has not actually paid any consideration for its subscribed RMB 400 million interest, so the tax basis is also zero. Therefore, Enterprise A should not pay corporate income tax under the current legal rules.

III. Legal Basis and Boundaries of the Tax Authority's Assessment Power

From recently disclosed cases, "zero-price transfers" are a high-incidence scenario in which the tax authority conducts net asset-based assessment. On the basis of the foregoing demonstration that the fair value of subscribed but unpaid interests is zero, it is necessary to further discuss whether the tax authority still has the right to assess zero-price transfers, and whether "net assets × subscription ratio" constitutes a reasonable assessment method.

(1) There Is No Special Assessment Rule for Partnership Interest Transfers in the Corporate Income Tax Law System

Examining China's current corporate income tax law system, there is no special assessment rule specifically targeting income from the transfer of partnership enterprise interests. If the tax authority wishes to negate the zero-price transfer price of a corporate partner and conduct an assessment, it can only resort to the general assessment power under Article 35 of the Tax Collection and Administration Law. Item 6 of this article stipulates that where a taxpayer's "declared tax basis is significantly low and without justifiable reasons," the tax authority has the right to assess the amount of tax payable. The tax authority not only needs to prove that the tax basis is "significantly low," but also needs to prove that there are "no justifiable reasons," and the assessment method should be reasonable and well-founded.

(2) Zero Price Does Not Constitute "Significantly Low and Without Justifiable Reasons" and Does Not Meet the Conditions for Assessment Under the Tax Collection and Administration Law

Whether a zero-price transfer price will be adjusted depends not on whether the tax basis is zero, nor on how large the partnership enterprise's net assets are, but on whether the zero price reflects the true fair value of the underlying interest. If the fair value of the subscribed but unpaid interest is itself zero, then the zero-price transfer reflects fair value, and the tax authority should not make an adjustment; only when the fair value is greater than zero and the transfer price is zero may it constitute a "significantly low price."

As mentioned above, under the premise that the partnership agreement explicitly stipulates that "only partners with paid-in capital enjoy the right to income distribution and property rights and interests," a subscribed but unpaid interest at the time of transfer does not correspond to any existing net asset rights and interests of the partnership enterprise. The transferor transfers the capital contribution obligation and the qualification to obtain rights and interests in the future, rather than existing property rights. From the perspective of economic substance, the fair value of a subscribed but unpaid interest is not only zero, but may even have negative value in specific circumstances—the original partner may be willing to pay consideration to quickly rid itself of the capital contribution obligation. Therefore, a zero-price transfer is a reflection of the true value of the subscribed but unpaid interest, has sufficient justifiable reasons, and does not constitute the "tax basis significantly low and without justifiable reasons" referred to in Article 35 of the Tax Collection and Administration Law.

(3) The Inherent Fallacy of the "Net Assets × Subscription Ratio" Assessment Method

Even assuming, for the sake of argument, that the tax authority has the right to assess income from the transfer of partnership interests, the calculation method of "net assets × subscription ratio" itself has insurmountable inherent contradictions.

The most fundamental contradiction lies in the mismatch of net asset ownership. The net assets of a partnership enterprise are formed by the paid-in capital contributions of all partners and operational accumulations. Under the circumstance that the partnership agreement stipulates distribution in proportion to paid-in capital, the net assets correspond to the rights and interests of partners with paid-in capital. A subscribed but unpaid partner neither participates in income distribution nor enjoys the right to claim residual property distribution. Multiplying the partnership enterprise's net assets by its subscription ratio is equivalent to gratuitously attributing the rights and interests of partners with paid-in capital to the subscribed partner, which is a fundamental error in the attribution of rights and interests.

Correspondingly, there is a contradiction with the "allocate-then-tax" rule. The production and operation income and other income of a partnership enterprise adopt the "allocate-then-tax" principle, and partners recognize taxable income in accordance with the distribution ratio stipulated in the partnership agreement. If, at the transfer stage, the subscribed partner is suddenly assessed as enjoying corresponding net asset rights and interests in accordance with the subscription ratio, this is equivalent to taxing economic benefits that Enterprise A has never enjoyed and will never enjoy. This not only violates the principle of tax fairness, but also creates an inherent conflict with the "allocate-then-tax" rule of partnership enterprises.

The systematic interpretation of stamp duty rules can provide a reference. It must first be clarified that the "equity transfer document" in the Stamp Duty Tax Items and Tax Rates Table attached to the Stamp Duty Law does not apply to the transfer of partnership enterprise property interests. However, Item 4 of Article 3 of the Announcement of the Ministry of Finance and the State Administration of Taxation on Policy Implementation Guidelines for Certain Stamp Duty Matters (2022 No. 22), regarding the stamp duty tax basis for company equity transfers which "does not include the listed portion of rights and interests for which capital contribution has been subscribed but not actually paid," reflects the tax law system's consistent stance that "the subscribed but unpaid portion does not have existing property value." This principle also applies to the recognition of corporate income tax income from the transfer of partnership enterprise interests, that is, the subscribed but unpaid portion should not be included in the transfer income.

IV. Risk Boundaries: Under What Circumstances May a Zero-Price Transfer Be Subject to Tax Adjustment

The foregoing analysis does not mean that zero-price transfers of subscribed interests are absolutely safe under any circumstances. When enterprises conduct such transactions, they still need to be vigilant about risk scenarios that may trigger tax adjustments, and make compliance arrangements in advance.

The most important concern is the risk that the transaction may be determined as lacking a reasonable commercial purpose. If the tax authority believes that the main purpose of the entire transaction arrangement is to transfer profits and evade tax obligations through zero-price transfer, it may initiate a tax adjustment based on the general anti-avoidance clause in Article 47 of the Corporate Income Tax Law.

Relatedly, attention should be paid to the risk of inconsistency between partnership agreement stipulations and actual execution. Although the partnership agreement stipulates that "only paid-in capital enjoys rights and interests," if Enterprise A has participated in income distribution or enjoyed other rights and interests in accordance with the subscription ratio, the tax authority may invoke the "substance over form" principle to negate the validity of the agreement stipulation and assert that Enterprise A actually enjoys rights and interests corresponding to the subscription ratio.

In addition, under the regulatory environment of the full launch of the Golden Tax Phase IV system, special vigilance is also required regarding the risk of retrospective audits of historical transactions and the non-exemption of liability after partnership enterprise deregistration. Golden Tax Phase IV has realized multi-department data linkage among industry and commerce, taxation, banking, and the Asset Management Association of China. Industrial and commercial changes in partnership enterprise interests automatically trigger tax risk assessments, and zero-price transfers and abnormal pricing directly enter the early warning model. Similar historical transactions may be subject to retrospective audits. It should also be noted that after a partnership enterprise is deregistered, the tax authority may still pursue tax payment from the partners, and enterprises cannot assume that "not being investigated at the time" means they are safe.

V. Compliance Path: How Enterprises Can Prevent Assessment Risks

In response to the above risks, enterprises may take the following compliance measures:

First, agreement design is the primary link in risk prevention. The partnership agreement and transfer agreement are the primary basis for the tax authority to judge the nature of the transaction. Enterprises should explicitly stipulate in the partnership agreement that "only partners with paid-in capital enjoy the right to income distribution and the right to residual property distribution, and the subscribed but unpaid portion does not enjoy partnership enterprise rights and interests," and ensure that this stipulation is consistent with actual distribution records. In the transfer agreement, the partnership interest should be divided into "paid-in portion" and "subscribed but unpaid portion" for separate pricing. This transfer only targets the subscribed but unpaid interest, with the price explicitly set at RMB 0. It is recommended that the agreement specifically state that this portion of the interest does not correspond to any existing partnership enterprise property rights and interests, and that the transferee undertakes the paid-in capital contribution obligation and the qualification to obtain corresponding partnership rights and interests after payment.

Second, systematically retain evidence proving the true commercial background of the transaction. The commercial reasonableness of a zero-price transfer cannot rely solely on agreement stipulations. Enterprises should systematically collect and preserve evidentiary materials that can prove the transaction has a true commercial background, including the commercial background of the partnership enterprise's establishment, the partnership agreement, financial statements and financial condition certificates of the corporate partner at the time of transfer, investment decision committee resolutions or partners' meeting resolutions, process documents for recruiting new partners, and capital contribution capability certificates of the transferee enterprise. When facing tax challenges, these materials can effectively prove that the transaction occurred due to the corporate partner's financial pressure and the partnership enterprise's commercial need to recruit new partners, rather than having tax avoidance as its main purpose.

Third, proactively communicate with the competent tax authority before signing the agreement. Enterprises should proactively conduct pre-communication with the competent tax authority before signing the transfer agreement, to understand the local assessment guidelines for the transfer of subscribed but unpaid interests, so as to reduce unforeseeable tax risks. If the underlying assets of the partnership enterprise include value-added assets such as real estate, land, and equity and account for a relatively high proportion, it is recommended to entrust an intermediary institution with statutory qualifications to issue an asset appraisal report in advance, to use the appraisal report to prove that the subscribed but unpaid interest does not correspond to underlying asset rights and interests, rather than passively waiting for the tax authority to assess.

Fourth, in the event of tax assessment, promptly safeguard rights and interests through legal means. If the tax authority makes a deemed assessment decision, the enterprise should promptly safeguard its legitimate rights and interests through legal means. According to the Administrative Reconsideration Law and the Tax Collection and Administration Law, where a taxpayer objects to the tax authority's tax decision, it shall first pay or remit the tax and late fees in accordance with the tax authority's tax decision, or provide corresponding guarantees, and then may apply for administrative reconsideration in accordance with the law; if dissatisfied with the administrative reconsideration decision, it may also file a lawsuit with the people's court in accordance with the law.