Recently, a Notice of Tax Administrative Penalty Matters has attracted wide attention, in which a natural person converts the nature of income by setting up a sole proprietorship enterprise, and draws up tax evasion and imposes a fine of 15.91 million yuan. In the past, in the field of network entertainment, there have been many cases of fictitious business, converting income from remuneration for labor services to business income, and converting income from domestic individuals to income from overseas enterprises, and the tax-related risk of converting the nature of income is still high. This article intends to analyze the way of realizing tax benefits and tax-related risks by converting the nature of income in the light of the case, and further put forward the compliance points of avoiding tax burden by adopting such a way.

Equity holding, also known as entrusted shareholding, anonymous investment or pseudonym, refers to the actual contributor and others agreed to the name of the other person on behalf of the actual contributor to fulfill the rights and obligations of shareholders, a kind of equity or share disposal. Shareholding is a relatively common mode of shareholding in the capital market, but if the "shares held on behalf of" is transferred, the actual shareholders, the nominal shareholders of the "shares held on behalf of" part of the tax payable without tax, the tax obligation and avoidance of payment of taxes. The issue of whether the criminal liability should be borne by the actual shareholders or the nominal shareholders is controversial. In this article, we will start from the case to explore the normative differences among the civil and commercial law, tax law and criminal law in the field of nominee shareholding, and suggest the relevant tax-related risks under the mode of nominee shareholding and provide suggestions to cope with them.

On December 30, 2021, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) issued the Announcement on the Administration of Collection of Individual Income Taxes on Income from Equity Investments and Operations (MOF SAT Announcement 2021 No. 41). In the past, although authorized levies for partnerships were treated as a tax preference in many places, they were essentially a form of levy management and the system was designed, to some extent, to address the inherent problems in the tax system. After the prohibition of authorized levies, the problems caused by the flaws in the tax system have gradually come to the fore, among which the problem of double taxation on the transfer of partnership shares is particularly obvious.

Since the Announcement on Administration of Individual Income Tax Collection on Business Income from Equity Investments (Announcement No. 41 of the Ministry of Finance and the State Administration of Taxation of 2021) came into effect, the space of authorized taxation for sole proprietorships and partnerships engaging in equity investments has been blocked, and all kinds of investment enterprises and investment funds under partnership structure have been under the focus of the tax authorities, which has implicated some new types of tax risks. It is understood that when reviewing the tax declaration information of enterprises, the tax authorities of a certain place proposed that the transfer of partnership shares by partners should also be declared for tax payment in accordance with the business income, and a tax rate of 5%-35% should be applied, which triggered a dispute between tax enterprises.

China's personal tax policy on investment in non-monetary assets has gone through an evolutionary process from "no levy" to "one-time payment" to "payment by installments", and the focus of the policy has also changed from "lack of taxable cash" to "preventing national tax loss" to "guiding private investment". The focus of the policy has also transitioned from "lack of personal taxable cash" to "preventing national tax loss" to "guiding private investment". As the economic activities of individual investors investing in equity, real estate, technical inventions and other forms of non-monetary assets become more and more widespread, coupled with the long process of fulfilling the investment agreement, there are numerous tax disputes on the point of time and standard for recognizing the transfer income. Especially under the current non-monetary assets investment tax policy, individual investors face three major tax risks that need to be prevented.

With the Notice on Administration of Collection of Individual Income Tax on Income from Equity Investments and Operations (Notice No. 41 of 2021 of the Ministry of Finance and the State Administration of Taxation) coming into effect, the tax advantages of holding equity, shares, partnership shares and other equity assets in partnerships are no longer available, and many investors have begun to dismantle their partnership investment structures and return to the original state of direct shareholding by natural persons. However, the dismantling of the investment structure will also result in a high tax burden, and in addition, even if the partnership is canceled, all types of transactions that occurred prior to the cancellation may still be subject to retroactive adjustments. Recently, a local tax bureau made public a case of multi-layer nested partnership write-off and the partners were subjected to retroactive tax payment. This article will analyze the tax risk of dismantling the partnership investment structure in light of this case.

Shareholding is a relatively common mode of shareholding in the capital market at present, and the mode of shareholding has been recognized by law according to the relevant provisions of the Civil Code and the Company Law. However, there is no systematic provision in the tax law on the taxation of shareholding, especially on the issue of whether the shareholding is subject to personal income tax, which is still controversial in practice. This article will combine the current legal provisions and IPO cases to put forward three suggestions for readers' reference on the tax-related risks faced by the restoration of nominee shareholding.

The reduction of nominee shareholding refers to the actual shareholders or contributors of the company for other considerations, in the name of others (including natural persons and organizations) as shareholders for the company's industrial and commercial registration, through the dissolution of the relationship between the shareholding in their own name directly holding shares. From the legal point of view, the restoration of shares held in lieu is the act of affirmation of the manifestation of the right of the hidden shareholders, but due to China's tax law has not yet made clear the nature of the "shares held in lieu of", resulting in practice for the shares held in lieu of the restoration of the tax should be paid, which should be the party to pay the tax, and so on, lack of a direct legal and regulatory basis. This article intends to summarize the different practical treatments of tax administration of shareholding reversion, and suggest the tax-related risks and coping strategies of this kind of business.

Translated with www.DeepL.com/Translator (free version)