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Failure to file tax return for transfer of nominee shares, hidden shareholder ruled to be guilty of tax evasion

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.

I. Brief description of the case

Before February 17, 2017, Bao was the legal representative of a certain pharmaceutical (Anhui) Co. Bao held 20% of the company's shares, Li held 40% of the company's shares, Li held shares to help Bao held on behalf of Bao. 17 January 2017, Bao, Li and Yin signed the "Equity Transfer Agreement", 51.09% of the equity of the company (of which 40% of the equity of Li, Bao 11.09% of the equity) transferred to Yin, the transfer price of 70 million yuan. From January to March of the same year, Yin Mou transferred to Bao Mou 53.56 million yuan in six times, and on January 20 of the same year, Yin Mou transferred to Li Mou 16.44 million yuan at one time. On February 15 of the same year, Bao held the false Equity Transfer Agreement to the Economic Development Zone Branch of Huainan Local Taxation Bureau to declare and pay the individual income tax on the income from transfer of personal equity, 51.09% of the shares in the false Equity Transfer Agreement was priced at only 3,260,506,000 RMB. On February 17 of the same year, the legal representative of a company was changed to Yin.

On September 7 and November 2, 2017, the Inspection Bureau of Huainan Local Taxation Bureau inspected the tax-related situation of Bao Mou and Li Mou respectively, and ascertained that Bao Mou and Li Mou had the unlawful fact of underpayment of tax by making false tax declarations.On August 28, 2018, the Inspection Bureau of Huainan Municipal Taxation Bureau made the Tax Treatment Decision of Huainan Tax Funneling Department No. 4 and No. 5 of [2018], and Administrative Penalty of Huainan Tax Funneling No. 2 and No. 3 of [2018], according to the law. ] No. 2 and No. 3 Tax Administrative Penalty Decision Letters, deciding to recover RMB 9,176,067.64 of the underpaid individual income tax tax and RMB 26,123.6 of the stamp duty tax from Li and to impose a fine, and to recover RMB 2,545,404.09 of the underpaid individual income tax and RMB 7,246.1 of the stamp duty tax from Bao and to impose a fine, and served the above instruments on September 4, 2018 to Li and Bao. On September 20, 2018, after the Inspection Bureau of Huainan Municipal Taxation Bureau served Li and Bao with the "Reminder from the Inspection Bureau of Huainan Municipal Taxation Bureau" for tax reminder in accordance with the law, Li and Bao paid a total of RMB 4.8 million in back taxes.

Because Li's 40% shareholding in a company is to help Bao to hold on behalf of Bao, Bao should be the actual taxpayer to pay the tax owed by Li. on June 17, 2020, Huainan Municipal Public Security Bureau, Economic and Technological Development Zone Branch of Bao suspected of tax evasion investigation, Bao evaded a total amount of 6,954,841.43 yuan. on January 22, 2021, Bao to pay the fine of 7,246.1 yuan. As of February 26, 2021, Bao's tax evasion tax had been fully paid, but the late fee and the remaining fine remained unpaid. The court of second instance ruled that Defendant Bao was guilty of tax evasion and sentenced him to four years' imprisonment and a fine of RMB500,000 yuan.

II. Legal basis and risk analysis of "nominee shareholding".

(I) "generation shareholding" the existence of the civil and commercial legal basis, generation holding agreement is legal and effective.

Out of the actual contributors do not want to show their names or in order to circumvent the company law on the number of shareholders and other considerations, the proxy agreement is very common in practice. According to Article 25 of the Provisions of the Supreme People's Court on Several Issues on the Application of the Company Law of the People's Republic of China (III) (hereinafter referred to as Interpretation III of the Company Law), as long as there is no relevant cause of invalidity of the contract in respect of the substitute holding agreement, the court shall recognize the contract as valid. At the same time, the Supreme People's Court on the application of the "People's Republic of China Company Law" provisions on a number of issues (III) also made provisions, the actual contributors and nominal shareholders due to the attribution of investment rights and interests in the dispute, the actual contributors to the actual fulfillment of the obligation of capital contribution to the nominal shareholders, the people's court shall support the claim of the rights of the nominal shareholders. Nominal shareholders to the company's shareholders register, the company registration authority to deny the rights of the actual contributors, the people's court shall not support. From the relevant legal provisions can be seen, the company law level affirms the legal status of the actual shareholders, and on behalf of the legal issues arising from the behavior of equity holders put forward a clear treatment. In this case, bao mou and li mou of the validity of the agreement has not been questioned, the agreement is valid, li mou for nominal shareholders, bao mou for actual shareholders. However, the interlocking of the powers and obligations of the nominal and actual shareholders made the determination of the subject of taxation when transferring the shareholding controversial.

(II) The tax law for the tax obligations in the case of proxy shareholding is not yet comprehensive, need to return to the basic principles of tax law to consider.

After the civil and commercial law from the legal level to clearly regulate the behavior of proxy shareholding, greatly promote the frequent occurrence of the economic behavior of proxy shareholding, and nowadays, proxy shareholding has become a normal matter in the commercial field. However, China's tax law has no relevant provisions on "nominee shareholding", and there is no clear legal and regulatory basis for the issue of "transfer of nominee shareholding by which party to pay the tax". The tax obligations under the tax law in the case of nominee shareholding are only addressed in the Announcement of the State Administration of Taxation on the Income Tax Issues Relating to the Transfer of Restricted Shares of Listed Companies by Enterprises (No. 39 of 2011 of the State Administration of Taxation). However, SAT No. 39 of 2011 only clarifies the issue of taxation on restricted shares held by enterprises on behalf of individuals. Specifically, the income derived from the transfer of restricted shares held by an enterprise on behalf of an individual as a result of the equity distribution reform shall be taxed as taxable income of the enterprise. Therefore, if you want to determine the subject of taxation when transferring shares held on behalf of an individual from the level of tax law, you need to return to the basic principles of tax law.

The longstanding disagreement on this issue is reflected in the controversy between formal taxation and substantive taxation, which has resulted in different tax treatments in practice. The principle of formal taxation holds that the provisions of the tax law are based on formal taxation, and the nominal shareholders should bear the tax obligation for the income from the transfer of shares held on behalf of the nominal shareholders, which is in line with the principle of tax law. On the other hand, the principle of substantive taxation holds that the tax law should inquire into the substance of the economic relationship, and the ultimate owner of the economic benefits should be the taxpayer. For the income from the transfer of shares held in lieu of shares, the actual shareholders should be the taxpayers and bear the tax obligations, which is in line with the principle of quantitative taxation of the tax law. In practice, the handling of this issue by the tax bureau also shows the above two results. In this case, the Inspection Bureau of Huainan Municipal Taxation Bureau followed the principle of formal taxation, and imposed corresponding penalties on Li Mou, the nominal shareholder, and Bao Mou, the actual shareholder. It is obvious that the tax obligation of nominal shareholders can facilitate tax collection and management and improve the efficiency of tax enforcement. However, for the two parties holding shares on behalf of the actual shareholders, the equity actually belongs to the actual shareholders, and the nominal shareholders do not enjoy the actual economic benefits, so following the principle of formal taxation will violate the principle of quantitative and energetic taxation. Moreover, when the nominal shareholder transfers the equity investment income to the actual shareholder, the problem of double taxation will arise.

III. Response Suggestions under the Mode of Substitute Shareholding

Currently, there is much uncertainty in the tax law treatment of the mode of nominee shareholding. It is common for tax authorities to follow the principle of formal taxation and take the nominal shareholders as the tax liabilities, while it is not clear whether the tax burden can be shifted to the actual shareholders through the nominee shareholding relationship, so the nominee shareholders may face the problem of double taxation when they cannot transfer the tax liabilities as well as transferring the corresponding income to the actual shareholders. Therefore, we propose the following measures.

(I) Clarify the relevant terms of the agreement

Taxpayers should re-examine the legal risks of equity holding and minimize the transaction structure of equity holding. If the transaction arrangement of equity holding is really necessary, the tax liability of nominal shareholders should be taken into account when signing the shareholding agreement and equity transfer agreement, and a clear agreement should be made on the assumption of the corresponding tax liability, and the corresponding tripartite agreement should be signed if necessary, so as to avoid the loss of one's own rights and interests. In the payment of the transfer of equity, should try to directly into the account of the actual shareholders, to reduce the unnecessary flow of funds, to avoid the tax authorities for the transaction substance of the question.

(II) Emphasis on the collection of relevant information

The shareholding agreement is the most important evidence to recognize the shareholding. Generally speaking, both parties signed a clear equity holding agreement has the legal effect of directly recognizing the equity holding relationship. But some special circumstances, such as siblings and other relatives or classmates and other friends, the taxpayer did not not sign the equity holding agreement, resulting in the subsequent confirmation of the ownership of equity is easy to dispute. At this time, if there are actual capital transfer certificates, witness testimony, actual participation in the business situation, the hidden shareholders and the relevant parties to sign the intentional transfer of equity documents and other circumstantial evidence, to form a complete chain of evidence of the existence of the relationship between the shareholding, can also be recognized that there is a relationship between the shareholding. However, this standard of proof is usually more stringent requirements, need to pay attention to the actual contributor to retain evidence, but also need other people's cooperation, etc., in judicial disputes, the results are unpredictable.

(III) Nominal shareholders should pay attention to the payment of the corresponding taxes

Taxpayers should also be careful in choosing the partner of the nominee relationship to minimize potential future tax risks. If the transaction arrangement of shareholding has already taken place, the nominal shareholders should urge the actual shareholders to pay the corresponding tax in a timely manner if the transferee of the shareholding has not withheld the corresponding tax when transferring the shareholding. At the same time, the nominal shareholders should also strengthen communication with the tax authorities on the relationship of shareholding. In case of tax-related risks, they should seek favorable tax treatment by hiring professional lawyers, so as to maximize the protection of their legitimate rights and interests.

IV. Summary

The provisions on nominee shareholding in the field of tax law are still insufficient, and the taxpayers of the income from the transfer of nominee shareholding should be clarified at the level of tax legislation, so as to eliminate the relevant disputes arising from it in practice. Nominee shareholders should pay attention to the collection of relevant materials in order to avoid possible criminal liability. In response to the risk at the tax law level, they can agree on it when signing the nominee holding agreement to maximize the protection of their own rights and interests. If the corresponding tax-related risks have already erupted, they should strengthen the communication with the tax authorities and hire professional tax lawyers to actively deal with the situation, and seek to avoid double taxation or reduce the tax burden by means of the principle of substantive taxation on the basis of comprehensive collection of evidence and materials.

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