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How to recognize the original value of equity when a natural person acquires equity through different ways?

Dec. 27, 2023, 5:33 p.m.
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Recently, a proposed listed company was questioned by the Shenzhen Stock Exchange (SZSE) due to the non-payment of individual income tax on the transfer of equity by its executives.2021 On April 29, 2012, the article "Tax Risk Oriented, Precise Implementation of Tax Supervision" made it clear that it is necessary to focus on the investigation of the tax-related violations in the field of transfer of equity by high-income earners. Since then, improper recognition of income and cost by natural persons in the process of equity transfer is very likely to cause tax risks. This article intends to combine a case to clarify how to recognize the original value of equity acquired by natural person shareholders through capital increase, assignment and capitalization.

Ⅰ. Introduction of the case

A limited liability company was established in April 2008, the registered capital of 5 million yuan, its shareholders are natural persons.

1. the stage of expansion and capital increase

In 2015, Company A was restructured into a joint stock limited company and introduced new natural person shareholders, and the registered capital was changed to 6 million yuan. In the process of capital increase of Company A, natural person A contributed 720,000 RMB to subscribe 120,000 RMB of registered capital of Company A in accordance with the Agreement on Capital Increase and Share Increase, and the remaining 600,000 RMB was credited to capital surplus.

2. Stage of acquisition by assignment

From January to May 2017, some shareholders of Company A transferred their equity interests one after another, Shareholder B transferred 60,000 shares of Company A acquired at RMB 360,000 in the capital increase to A at par value, Shareholder C transferred 20,000 shares of Company A acquired at RMB 20,000 at the time of the establishment of the company at a premium of RMB 120,000, and paid RMB 19,988 of individual income tax in accordance with the proceeds of its equity transfer. At that stage, Company A acquired a total of 80,000 shares of Company A.

3. First equity distribution stage

In January 2018, Company A was listed on the National Stock Transfer System (hereinafter referred to as the New Third Board). in June 2018, Company A increased its share capital by undistributed profits and other capital reserves other than those formed by the share premium on the basis of the Company's existing total share capital of 6,000,000 shares. at that stage, A received a total of 300,000 shares of Company A's transferred share capital, and the registered share capital of Company A was changed from RMB6,000,000 to RMB15,000,000.

4. Second equity distribution stage

In May 2020, Company A, based on the company's existing total share capital of 15 million shares, will send 6 bonus shares for every 10 shares to all shareholders with undistributed profits. At that stage, A receives another 300,000 shares of Company A's transferred share capital. After this dividend distribution, the total number of shares held by A is 800,000, and the total number of Company A's share capital increases from 15 million to 24 million.

In March 2023, Company A terminated its listing on the New Third Board upon application.

In April 2023, A decided to withdraw from Company A and transferred all of the 800,000 shares held by it to the major shareholder of Company A.

Ⅱ. The transfer of equity by natural person shareholders, how to determine the original value of equity?

From the aforementioned case can be seen, the natural person shareholder A to obtain the equity of company A in different ways, part of the original acquisition through capital increase, part of the other shareholders from company A to obtain, and part of the Department of equity allocation, capitalization and acquisition. According to the different stages and ways of A's acquisition of equity, the recognition of the original value of its equity is also different.

(Ⅰ) Acquisition of equity through capital increase: actual capital contribution

According to Article 15(1) of the Announcement of the State Administration of Taxation on the Issuance of Administrative Measures for Individual Income Tax on Income from Transfer of Equity Interests (for Trial Implementation) (Announcement No. 67 of 2014 of the State Administration of Taxation, hereinafter referred to as "Announcement No. 67"), "Equity interests acquired through cash contribution shall be recognized in accordance with the price actually paid". The original value of equity shall be recognized according to the sum of the price actually paid and the reasonable tax directly related to the acquisition of equity". In this case, A cash contribution of 720,000 yuan to obtain 120,000 shares of Company A, A should provide the tax authorities with the "Capital Increase and Expansion Agreement" as well as proof of payment of capital contribution and other evidence of the original value of the equity, and accordingly recognize the original value of its shares for 720,000 yuan.

(Ⅱ) Acquisition of Equity Interests by Transferee: Transferee Price

At the stage of acquisition by assignment, on the one hand, B transfers equity to A at par, and A pays a consideration of RMB 360,000 to B, which is higher than the share of net assets, and there is no unfair situation that the price of the equity transfer is low, and B does not obtain excess gain or income in respect of the transaction, and does not need to pay personal income tax. On the other hand, C transfers equity to A at a premium, A pays C a consideration of 120,000 yuan, and C recognizes the balance of 120,000 yuan of equity transfer income less 20,000 yuan of the original value of the equity and reasonable expenses as "income from property transfers" and pays 19,988 yuan of individual income tax. Therefore, A pays a total consideration of RMB 480,000 for the transfer of shares at this stage, and the original value of the shares should be recognized as RMB 480,000 accordingly. The difference is that, when A subsequently transfers the shares to provide tax information to prove the original value of the part of the shares, for the part of the shares transferred at par, A should provide the tax authorities with the transfer agreement and payment vouchers; for the part of the shares transferred at a premium, A is also required to provide the tax authorities with C's personal income tax clearance certificate.

(Ⅲ) Acquisition of equity through conversion of share capital: $0 or conversion amount?

According to Article 15(4) of Announcement No. 67, "If an investee enterprise increases its share capital by transferring capital surplus, surplus and undistributed profits, and the individual shareholders have already paid individual income tax in accordance with the law, the original value of its equity interest in the newly transferred share capital shall be recognized by the sum of the transfer amount and the relevant tax". For non-listed companies, the conversion of capital surplus, surplus reserves and undistributed profits to share capital is equivalent to distributing dividends first and then investing. Among them, the shareholders shall pay 20% personal income tax on dividends and bonuses, and then invest in the invested enterprise with the residual value, therefore, the corresponding increase in the original value of equity is in line with the actual. However, this is not the case for listed companies, as mentioned above, through the two equity distributions in 2018 and 2020, the shares of Company A held by A have increased by 600,000 shares, but when determining the original value of this part of the shares, the following two controversies exist in practice:

One view is that, according to the provisions of Article 2 of the Circular of the State Administration of Taxation on Further Strengthening the Administration of the Collection of Individual Income Tax for High Income Earners (Guo Shui Fa [2010] No. 54), enterprises that increase their registered capital and share capital by undistributed profits, surplus reserves and other capital reserves except for the issuance of stock premiums shall be required to increase their registered capital and share capital in accordance with the item of "Income from Interest, Dividends and Bonuses" and in accordance with the current policy. According to the item of "Interest, Dividend and Bonus Income", personal income tax shall be levied in accordance with the current policy. That is, applying the provisions of Article 1 of the Circular of the Ministry of Finance, State Administration of Taxation and Securities and Futures Commission on Issues Relating to Differential Individual Income Tax Policies on Dividends and Dividends of Listed Companies (Cai Shui [2015] No. 101), the dividends and dividends of listed companies' shares acquired by an individual from the public issuance and transfer market are exempted from the individual income tax for a period of more than one year; for a period of one month (including one month), the dividends and dividends of the listed company are exempted from individual income tax. ), the full amount of dividend and bonus income shall be included in taxable income; if the holding period is more than 1 month to 1 year (including 1 year), the dividend and bonus income shall be temporarily reduced by 50% and included in taxable income. In this case, Company A belongs to the New Third Board Enterprises during the period from January 2018 to March 2023, and the 600,000 shares acquired by A through capitalization are subject to the tax exemption of dividend and bonus income, and A will not actually pay personal income tax when acquiring these 60 shares, which does not meet the requirement of Circular 67 "Individual shareholders have paid personal income tax in accordance with the law". It does not meet the requirement of Circular 67 "Individual shareholders have paid individual tax in accordance with the law", and the original value of the shares should be recognized as 0 Yuan for the portion of shares transferred to capital.

According to another viewpoint, A has not paid the personal income tax by applying the above tax exemption, which is a statutory tax exemption. According to Article 32 of the Implementation Rules of the Tax Collection and Administration Law, as long as A has made the tax declaration in accordance with the relevant provisions, even if it has not paid the tax, it does not need to pay the tax, and also fulfills the requirement of Circular No. 67 of paying the personal income tax in accordance with the law, which shall not affect the original value of the shares in accordance with the amount of 600,000 RMB transferred to the capital. Recognize the original value of shares. Moreover, listed companies to capital surplus, surplus, undistributed profits to increase share capital and non-listed companies first dividends, and then the effect of investment is the same, due to the investment link actually increase the registered capital, that is, increase the original value of the shares, if the enterprise is a listed company and do not allow it to increase the original value of the shares on the conversion of share capital, it will be contrary to the principle of fairness of the tax and lead to the irrationality of the subsequent transactions.

The author agrees with the second viewpoint mentioned above. According to the current rules for the collection and management of individual income tax, the income obtained by individuals from the transfer of shares of domestic listed companies and the income obtained from the transfer of non-original shares of the listed companies on the New Third Board are temporarily exempted from individual income tax, which leads to a lack of the necessary attention to the determination of the original value of the shares in such cases in practice. However, for the individuals who have originally obtained the said shares, if they are not allowed to confirm the original value of the shares in accordance with the amount of the capitalization of the conversion It is equivalent to the personal income tax on dividends and bonuses not paid at the time of capitalization, which is levied in accordance with the income from transfer of property at the time of transfer, which interprets the tax exemption rule as a deferred tax rule in disguise, which impairs the taxpayers' legitimate rights and interests in enjoying the tax reduction and exemption, and which is inconsistent with the legislative purpose of Cai Shui [2015] No. 101. Therefore, the original value of the shares corresponding to the portion of registered capital and share capital increased by undistributed profits, surplus reserves and other capital surplus except for stock premium issue should be recognized as the original value of equity in accordance with the amount of the transfer.

Ⅲ. The extension: discount capital increase in the original value of equity how to recognize?

The aforementioned expansion of capital increase to obtain equity in the form of premium capital increase, a transfer of equity to determine the original value of the part of the shares is still based on the actual amount of its capital contribution. Correspondingly, if the shareholders through the discounted way to obtain equity, the original value of its equity and how to recognize it? Assuming that A to 6 million yuan to buy all the shares of A company 1 million shares, after the operation of A company's net asset value of 11 million yuan, of which, 1 million yuan for the registered capital, 10 million yuan into the capital surplus, if at this time A in accordance with the net asset value of the transfer of all the shares should be based on its actual capital contribution of 6 million yuan to recognize the original value of the shares, and recognize the proceeds of 5 million yuan, to pay personal income tax One million yuan. However, if a new shareholder is introduced through a discounted capital increase, the new shareholder invested 1 million yuan capital increase, the full amount of the registered capital, then the proportion of a's shareholding fell to 50%, and then transfer of the original value of the shares remain unchanged, but the income of the transfer of equity from the original 11 million yuan down to 6 million yuan, less the original value of the equity income of 0. That is, a through the dilution of the value of its shareholding to the new shareholders to produce the benefit of 5 million yuan, and then transfer, may realize the low price of shares, and recognize income of 5 million yuan. Then make a transfer, may realize the effect of low price, flat price or even loss transfer, so as to achieve the purpose of not paying or paying less personal income tax. Moreover, since the net asset approval method is the first downward equity income approval method stipulated in Circular 67, it is also difficult for the tax authorities to re-approve the transaction price on the ground that the income from equity transfer is obviously low. Therefore, premium capital increase or discount capital increase and other unfair capital increase will not have an impact on the method of recognizing the original value of equity, are the actual capital contribution of the shareholders to recognize the original value of the shares, but will affect the shareholders' tax obligations through the impact on the income from the transfer of equity.

Taxpayers need to be reminded that, for the impact of discounted capital increase on the income from equity transfer, taxpayers still face the risk of tax adjustment. On the one hand, under normal circumstances, the capital increase should be in the form of parity or premium, and there is a phenomenon that the original shareholder transfers the share of net assets to the new shareholder at no cost by adopting the discounted capital increase and including the new shareholder's capital contribution to the registered capital, and the tax authorities may, based on the provisions of Article 8(1)(c) of the Individual Income Tax Law, determine that the discounted capital increase is an arrangement without a reasonable commercial purpose, and make adjustments to the original shareholders' share of net assets. share to be adjusted. On the other hand, according to the Announcement of the State Administration of Taxation on Issues of Individual Income Tax on the Conversion of Original Surplus Accumulation into Share Capital after Acquisition of Equity Interests in Enterprises by Individual Investors (Announcement of the State Administration of Taxation No. 23 of 2013), if the new shareholders acquired the equity interests at a price lower than the net asset price, the portion of the difference between the acquisition price of the equity interests lower than the original ownership interests has not been counted as part of the transaction price of the equity interests, and the portion of the new shareholders' acquisition of the conversion of the accumulated surplus into If the new shareholder acquires equity at a price lower than the original owner's equity and the difference is not included in the price of the equity transaction, the new shareholder shall be subject to individual income tax under the item of "Interest, Dividend and Bonus Income". In other words, the tax authorities may also recognize the discounted capital increase as a capital increase at par and then transfer the equity, and the new shareholders will be taxed on the transfer of capital or dividends.

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Copyright@2019 Aequity.ALL rights reserved京CP备17073992号-1