Recently, several celebrities and online streamers have once again found themselves embroiled in the controversy of tax evasion. Many of them have been reported, fined, and some have even faced tax penalties for the second time. People's Daily commented, "Tax evasion is inexcusable, and ignoring the law will lead to dire consequences." Why does tax evasion occur frequently in the online entertainment industry? Why do some individuals still harbor illusions of luck? Where exactly do the tax risks lie in the online entertainment industry? This article will combine with the tax authorities' reports on tax evasion cases involving celebrities and streamers, summarize and analyze common tax evasion methods in the online entertainment industry, with the aim of providing suggestions for the path of tax compliance in the online entertainment industry and its practitioners.

I. Breaking: Multiple Tax Evasion Cases Emerge Involving Celebrities and Online Streamers; Repeated Occurrence of Tax Risks in the Online Entertainment Industry

(I) Tax Evasion Case of Yuan Bingyan and Affiliated Enterprises

According to a report from the tax authorities in Chongqing, Yuan Bingyan and her affiliated enterprises are implicated in several tax-related issues: firstly, Yuan Bingyan failed to declare and pay personal income tax on some of her labor income; secondly, she improperly deducted some expenses for personal consumption in a controlled affiliated enterprise, resulting in underpayment of personal income tax; thirdly, her affiliated enterprises engaged in the improper deduction of expenses for personal consumption, leading to underpayment of value-added tax, corporate income tax, and failure to withhold and pay individual income tax. In response, the Chongqing Tax Bureau ordered Yuan Bingyan to pay back taxes, imposed late payment penalties, and fined her 2.9738 million yuan; her affiliated enterprises were required to pay back taxes, faced late payment penalties, and were fined 1.3298 million yuan.

Based on my research, in June of the previous year, Yuan Bingyan's affiliated company was penalized 978,000 yuan by tax authorities for using corporate funds to pay for personal consumption expenses of 815,000 yuan. As such, it is evident that Yuan Bingyan's affiliated company has faced penalties twice in a little over a year due to tax issues.

(II) Tax Evasion Case of Online Streamer Wu Chuan

The Guangxi Tax Bureau discovered through an inspection that online streamer Wu Chuan earned income from online live broadcasts from 2018 to 2021 and failed to declare and pay 8.2791 million yuan in personal income tax. Wu Chuan falsely declared and evaded 3.6218 million yuan in personal income tax through methods such as converting income. Consequently, Wu Chuan was ordered to pay back taxes, faced late payment penalties, and was fined a total of 13.5908 million yuan.

It is worth noting that not all undeclared income constitutes tax evasion. According to Article 63 of the "Tax Collection and Administration Law," the refusal to declare or false declaration of tax by means such as not declaring or underreporting tax liabilities after being notified by the tax authorities constitutes tax evasion. Partially undeclared income that is declared promptly and accurately after notification by the tax authorities does not constitute tax evasion.

(III) Penalty for Non-compliance with Individual Income Tax Settlement and Payment by Network Streamer Shan Yahui

During a post-event spot check on the settlement and payment of comprehensive income tax, the Xinjiang Tax Bureau found that network streamer Shan Yahui had earned comprehensive income but did not truthfully handle the settlement and payment of individual income tax for the year 2021, despite multiple reminders from the tax authorities. Therefore, the tax bureau ordered Shan Yahui to pay back taxes, imposed late payment penalties, and fined a total of 327,500 yuan.

(IV) Tax Evasion Case of Film and Television Producer Luan Huiqing

The Xiamen Tax Bureau discovered through an inspection that Luan Huiqing, from 2018 to 2021, earned labor remuneration income by providing film and television production services, evading 288,100 yuan in personal income tax by converting the income of the individual's studio. Luan Huiqing was ordered to pay back taxes, faced late payment penalties, and was fined a total of 507,500 yuan.

(V) Underpayment of Tax by Online Streamer Wu Sihao

Through precise analysis of clues in tax supervision, the Anhui Tax Bureau found that online streamer Wu Sihao earned income from online live broadcasts from 2019 to 2021, failed to declare and underreported 2.1057 million yuan in personal income tax. Therefore, Wu Sihao was ordered to pay back taxes, faced late payment penalties, and was fined a total of 4.7675 million yuan.

(VI) Summary

The above four reported cases share commonalities: tax authorities provided multiple reminders, urged rectification, and issued warnings through interviews, and yet, the individuals failed to thoroughly rectify their non-compliant tax behaviors. Only after initiating inspection procedures did the tax authorities publicly expose the tax violations, reflecting the comprehensive governance approach of tax authorities through the "five-step working method" of "prompting reminders, urging rectification, interview warnings, initiating inspection procedures, and publicly exposing violations."

It is noteworthy that, besides utilizing tax data for comparative analysis of tax violations, reporting clues is also an important source of inspection clues for tax authorities. Recently, several celebrities including Jiang Yiyi, Shu Chang, and Song Zuer have been reported by name for tax evasion. In the following analysis, the author will delve into the sources of tax violation clues and inspection methods in the online entertainment industry.

II. Factors and Inspection Methods of Tax-related Violations in the Online Entertainment Industry

(I) Sources of Tax Inspection Violation Clues

Tax inspection is more cautious and rigorous in handling cases from higher authorities, reports (especially real-name reports), and external units such as public security, procuratorates, auditing, and discipline inspection and supervision, compared to cases from within the tax authorities. Tax inspection can also obtain illegal clues through third-party external information exchanges, such as equity transactions and civil judgments on platforms like the Judgment Document Network, involving issues like shadow contracts. The illegal clues mentioned above from tax data analysis fall into the category of internal tax-related sources.

(II) Tax Inspection Methods

Since the beginning of 2021, tax bureaus in many regions have issued notices urging celebrities and online streamers to conduct self-inspections, report tax-related issues, and rectify them. For individuals who still refuse to cooperate with rectification after reminders, urging, and warnings, cases are initiated for inspection, and for those with severe circumstances and adverse impacts, public exposure is carried out. At the 2022 "Asia Initiative" conference, Director Wang Jun of the State Administration of Taxation proposed a "five-step working method" for handling tax evasion cases involving high-income individuals: "prompting reminders, urging rectification, interview warnings, initiating inspection procedures, and publicly exposing violations."

Thus, tax authorities have adopted a flexible enforcement procedure, the "five-step working method," for individuals in the online entertainment industry to enhance their compliance with tax laws. This approach also reflects the temperate enforcement approach of tax authorities. Despite this, some celebrities and online streamers still harbor a sense of luck, continuing to act in their own way and disregarding legal provisions. Based on the author's observations, celebrities and online streamers primarily engage in the following tax-related violations.

III. Common Tax Evasion Methods in the Online Entertainment Industry

(I) Traditional Tax Evasion Methods in Online Entertainment

1. Changing Income Nature: Converting wages and labor remuneration into business income

According to the provisions of the Personal Income Tax Law, income from wages and labor remuneration falls under comprehensive income tax, with rates ranging from 3% to 45%. Business income is taxed at rates from 5% to 35%. For high-income individuals like celebrities and streamers, applying the business income tax category results in a lower tax rate. By deducting relevant costs and expenses related to production and business activities, individuals can, under certain conditions, enjoy tax incentives or pay personal income tax based on a predetermined method, significantly reducing the tax burden. Celebrities and online streamers often utilize this method by establishing studios. Examples include Deng Lun, Viya, Xueli, and film and television producer Luan Huiqing.

However, it should be noted that not all instances of paying personal income tax through organizations like studios constitute tax evasion. The substantial taxation principle of tax law, considering factors such as the presence of an actual office, staff, matching income and expenses, and assuming business risks, needs to be considered when celebrities and streamers establish personal studios.

2. Concealing Income: Evading taxes through shadow contracts and contract splitting

Evasion of taxes through the use of shadow contracts poses significant criminal risks. A shadow contract involves parties signing two contracts—one submitted to the tax authorities and another privately signed. The first contract determines the taxable basis for transactions, while the second, the shadow contract, is used for actual performance. This method allows for the illegal purpose of underreporting taxes. In the case of Zheng Shuang's tax evasion, she used shadow contracts to split her actual earnings into two parts. One part was reported to the tax bureau, and the remaining portion was injected into the company through fictitious contracts, effectively concealing income and evading taxes.

In Fan Bingbing's case, she evaded personal income tax of 6.18 million yuan by splitting her remuneration. In another case involving a company, Lu, and Huang (2017), defendants Lu and Huang were punished for signing "shadow contracts" with asset recipients using deceptive means, evading tax obligations.

Therefore, using shadow contracts to conceal income has considerable criminal risks.

3. Non-Withholding of Personal Income Tax: Live streaming platforms and companies fail to fulfill withholding obligations

The legal relationship between online streamers and live streaming platforms is often ambiguous, leading to difficulties in determining tax obligations. Some online streamers collaborate with brokerage firms and live streaming platforms, resulting in diversified income sources, complicating tax obligations. According to Article 9 of the Personal Income Tax Law: "Personal income tax is withheld by the payer of income." Therefore, the key to determining the withholding obligation lies in accurately identifying the payer of income. Live streaming platforms should correctly recognize and identify the payments made and fulfill their withholding obligations.

In the case of Yuan Bingyan, her associated company was penalized twice for failing to fulfill withholding obligations. The failure of live streaming platforms to fulfill withholding obligations could lead to administrative penalties, including fines ranging from 0.5 to 3 times the amount of tax that should have been withheld.

4. Failure to Truthfully Declare Taxes: Failure to file tax declarations within the prescribed period

Since the implementation of the personal income tax law in 2018, a combined comprehensive and categorized approach has been adopted. The state has implemented measures such as raising the threshold, implementing special additional deductions, and annual settlement and payment to promote tax fairness. However, some online streamers exploit this by not truthfully declaring their personal income tax. Streamer Dan Yahui was penalized for failing to truthfully handle the annual settlement and payment of personal income tax. Similar penalties were imposed on streamer Wu Sihao.

According to Article 64, paragraph 2 of the Tax Collection and Administration Law: "If a taxpayer fails to declare taxes or does not pay or underpays the amount of tax payable, the tax authority shall recover the unpaid or underpaid taxes and impose a penalty of more than 50% and less than five times the unpaid or underpaid taxes." This article is an important legal basis for imposing fines on online streamers for failing to truthfully declare taxes.

(II) New Types of Tax Evasion Methods in Online Entertainment

1. Indefinitely Postponing the Time of Tax Liability: Live streaming platforms engage in virtual item accounting and fail to recognize income as required by law

A live streaming platform operated by a certain company was fined over 230,000 yuan for recording the unspent amount of virtual items purchased by users as accounts receivable, constituting tax evasion. This approach, aimed at indefinitely postponing the time of tax liability, involves changing the accounting method for recognizing income, recording revenue from the sale of virtual items as accounts receivable, and subsequently evading taxes. 

In practice, some online platforms change the method of income recognition to indefinitely postpone the time of tax liability. They record revenue from the sale of virtual items as accounts receivable, aiming to evade taxes by not paying or underpaying the amount of tax payable. This practice has led to penalties.

2. Utilizing Overseas Enterprises for Tax Evasion: Portraying domestic personal income as income of overseas enterprises to evade taxes

In the tax evasion cases involving celebrities and online streamers, a common method involves portraying domestic personal income as income of overseas enterprises, thus evading taxes. This new and more covert method takes advantage of the strong influence of well-known celebrities or online streamers to persuade domestic enterprises to change the nature of payments from personal labor remuneration to payments to overseas enterprises. This allows the individuals to conceal income and evade taxes, avoiding taxation supervision in China due to its cross-border nature, making evidence collection and inspection more challenging.

3. Personal Expenses Company-ization: Evasion of taxes through disguised reimbursement and dividends for personal consumption and loans

According to the "Notice on Regulating the Personal Income Tax Collection Management of Individual Investors" (Cai Shui [2003] No. 158), if an enterprise uses corporate funds to pay for non-business-related consumption expenditures for individuals, it is considered a dividend distribution. Additionally, if an individual investor fails to repay a loan obtained from an enterprise and does not use it for the business operation of the enterprise by the end of the tax year, it is also regarded as a dividend distribution.

In Yuan Bingyan's case, holding 100% of the shares in the associated company mentioned in the report, she, as the full shareholder of the associated company, used the company to account for and reimburse personal consumption expenses. This was considered a dividend distribution, and personal income tax was levied under the "income from interest, dividends, and bonuses" category.

In the online entertainment industry, there is not only a phenomenon where celebrities use enterprises they have invested in to account for and reimburse personal consumption expenses but also instances of disguising loans to enterprises to conceal the fact of dividend distribution. In general, regular company expenditures and shareholder loans are part of normal business operations. However, using these means to evade tax payments is difficult to detect, making real-name reporting the main source of information for tax inspections in such cases.

IV.Tax-Related Risks and Strategies for Addressing Them in the Online Entertainment Industry

(I) Tax-Related Risks: Risks of Tax Evasion and Fictitious Invoicing by Celebrities and Streamers

Engaging in tax evasion will lead to public condemnation and resistance. Both People's Daily and China Economic Net have commented on such tax evasion cases, harshly criticizing the actions of celebrities and online streamers. Paying taxes in accordance with the law is a legal obligation for every citizen, and celebrities and online streamers, as public figures, should serve as role models. Violating laws and regulations will result in resistance from collaborators and audiences.

In addition to administrative penalties, tax evasion behavior also faces criminal risks. Individuals may face criminal responsibility if they fail to pay the full amount of taxes, surcharges, and fines for tax evasion. Alternatively, if an individual is punished for tax evasion twice within five years, they may be held criminally liable. It's important to note that both instances of punishment must be for tax evasion. In the case of Yuan Bingyan, the tax authority's first penalty targeted Yuan's associated company without characterizing the tax violation as tax evasion. The second penalty targeted Yuan Bingyan and her associated company, explicitly classifying the violation as tax evasion, but it still counted as the first tax evasion penalty, thus not constituting a crime. However, those involved should not rely on luck, as facing a second penalty may lead to criminal liability.

Utilizing methods like fictitious invoicing may also constitute invoicing fraud. Celebrities and streamers register studios to conduct business under the studio's name and issue invoices externally. Simultaneously, studios can claim deductions for invoice costs. However, if a studio issues service invoices that are later deemed by the tax authority to be the "labor service" of celebrities or streamers and cannot be issued in the name of the studio, there is a risk of fictitious invoicing. Additionally, in the "income splitting" model, celebrities or streamers may split income among several studios, some of which are unrelated to the celebrity but are used purely for receiving payments and issuing invoices, posing a risk of fictitious invoicing.

(II) Risk Mitigation: Preventing Unrestrained Growth and Strengthening Tax Compliance

1. Raise Awareness of Tax Compliance, Regular Tax Health Checkups

Celebrities and online streamers should conduct regular self-checks to identify any non-compliant tax practices based on reported cases. If necessary, consider hiring professional tax experts to assess tax risks and provide solutions for self-correction. It's crucial to reflect on whether there is a lack of awareness of tax compliance and to refrain from using illegal means for tax planning to pursue undue tax benefits, which harm the country's tax interests. Celebrities and online streamers should stay informed about tax policies, accurately identify the boundaries between legal tax planning and tax evasion, and pay taxes with integrity according to laws and regulations.

2. Proactively Respond to Tax Notices, Inspections, and Audits to Avoid Being Classified as Tax Evasion

If celebrities or online streamers did not discover non-compliant tax practices during self-checks but receive reminders, supervision, or warnings from tax authorities, they should promptly conduct targeted checks, rectify any issues, and pay any outstanding taxes to avoid being classified as engaging in tax evasion. In the worst-case scenario, even if classified as tax evasion after an audit, they should actively rectify the issues, pay the outstanding taxes, and strive for the lightest possible administrative penalty.

3. Prevent Transformation into Tax Evasion Crimes and Avoid Criminal Risks

Currently, no celebrities or online streamers have been convicted of tax evasion crimes because Article 101 of the Criminal Law requires the precondition of administrative penalties. If celebrities or streamers face a second administrative penalty from tax authorities, and the amount involved is significant, constituting more than 30% of the payable taxes, it will amount to tax evasion, potentially leading to a criminal penalty of up to seven years of imprisonment. Therefore, celebrities and online streamers should promptly pay outstanding taxes, surcharges, and fines as required by the tax authorities to prevent the transformation into tax evasion crimes.