Wei Ya, real name Huang Wei, is a well-known Internet celebrity anchor in mainland China. In 2020, Wei Ya ranked first in the total list of live streaming with goods, with an amount of more than 30 billion yuan, a stable "live broadcast sister". At the end of 2021, the Zhejiang Provincial Taxation Bureau announced Via's tax evasion case on its official website:
After investigation, between 2019 and 2020, Via evaded taxes of 643 million yuan and other underpaid taxes by concealing personal income, fictitious business conversion income and false declarations, and other underpaid taxes of 0.6 billion yuan. In accordance with relevant laws and regulations, the Inspection Bureau of the Hangzhou Municipal Taxation Bureau pursued Wei Ya's tax payment, collected late fees and imposed fines totaling 1.341 billion yuan.
Due to the celebrity effect of Via, coupled with the large amount of tax evasion, a stone stirred up thousands of waves, and public opinion was in an uproar.
How did Via evade taxes? Below we will reconstruct Via's transaction structure and analyze how it achieves the purpose of tax evasion.
01 The business model of Via Live
In the live broadcasting industry, the head of the Internet celebrity anchor is not a single soldier, often managed by the MCN company. On the one hand, MCN will negotiate and communicate with the brand owners of live broadcast products on products, prices, anchors, profit sharing, live broadcast platforms, live broadcast dates, etc.; on the other hand, MCN companies will also directly sign live e-commerce promotion contracts and orders.
The MCN company to which Wei Ya belongs is called Qianxun (Hangzhou) Culture Media Co., Ltd. (hereinafter referred to as Qianxun Culture). According to the official website of Qianxun Culture, the company was founded in 2017 and is the top 1 of the new content e-commerce live broadcasting agency. It has a total of more than 50 anchors, including Taobao's first anchor, Wei Ya, and TOP talent anchors: Xiaoqiao Jofay, An Ananan, Chu Fei Churan twins, Da Ying Zi LOVE, etc.; red anchors: Beibei Rabbit, etc.; star anchors: Lin Yilun, Li Jing, Li Xiang, Dazuo, Li Ai, etc., covering all categories of beauty, life, clothing and other categories, Taobao fans tens of millions, multi-dimensional accurate reach to the audience. Since 2018, Qianxun has carried out in the direction of group management, carried out all-round business, and has created a Beijing star live broadcast base, a Hangzhou super supply chain base, and a subsidiary, Qian Entertainment, which has opened up the channel of traditional entertainment and e-commerce live broadcasting to achieve content monetization, and the subsidiary Qianxi Culture is responsible for IP licensing business.
The shareholding structure of Qianxun Culture is shown in the following figure:
Through the equity structure diagram, we will see that the actual controller of Qianxun Culture is Wei Ya's husband Dong Haifeng. However, Qianxun Culture is not a Weiya mom-and-pop shop, but an equity incentive and the introduction of two well-known funds, namely Legend Capital under Lenovo and Yunfeng Fund under Jack Ma. According to the official website of Qianxun Culture, it plans to apply for listing in 2025.
The income of live streaming mainly includes two types: one is online commission, and the other is offline fee.
1 Online commission
The online commission is calculated according to the settlement turnover and online commission rate of the live streaming with goods, and the online commission rate is determined by the product party in consultation with the MCN company or the individual anchor. In the actual distribution of benefits, the product party sets the agreed commission rate on the e-commerce platform, and during the period from the start of the live broadcast to the removal of the product link, the e-commerce platform directly deducts the online commission according to the settlement turnover and the set commission rate, and the online commission is subsequently redistributed by the e-commerce platform, the live broadcast platform, the MCN company and the anchor according to the platform rules or agreements. The specific allocation process is shown in the following figure:
2 Offline fees
Offline fees are mainly offline pit fees. Offline pit fee is a fixed fee charged according to the number of live broadcasts, generally the offline pit fee of each live broadcast activity ranges from tens of thousands to hundreds of thousands, which is determined by the product party in consultation with MCN Company, and the product party pays the offline pit fee to MCN Company by bank transfer before the start of the live broadcast activity.
After understanding the business model of the live streaming industry, let's sort out the distribution path of Via's live streaming income. First, THE CULTURE (MCN) recognizes the online commissions and offline fees it collects as the company's revenue. Then, according to the agreement it signed with Via, Qianxun Culture calculated Via's commission according to the agreed proportion of the share and distributed it to Via. See figure below:
According to this transaction structure, how much personal income tax does Via need to pay? We use Via's annual income of 2 billion yuan to make a tax calculation. Starting from 2019, the Individual Income Tax Law will refer to four types of income, such as wages and salaries, labor remuneration, author remuneration, and royalties, collectively referred to as comprehensive income, and apply an excess progressive tax rate of 3% to 45%.
That is to say, whether Wei Ya and Qianxun Culture sign a labor contract or a labor contract, whether the income obtained is wages and salaries or labor remuneration, the applicable tax rate is the same, that is, the part of the annual taxable income exceeding 960,000 yuan will be subject to an excess progressive tax rate of 45%. If Via's annual income is 2 billion yuan, her tax burden on personal income tax is shown in the following table:
By comparison, compared with Wei Ya's salary as an employee of Qianxun Culture, Wei Ya signed a labor contract with Qianxun Culture, thereby obtaining labor remuneration income, which will save about 180 million yuan in taxes. But the tax burden of 720 million yuan, Wei Ya still feels very heavy, is there a better way to reduce the tax burden? Let's look at two other tax-saving ideas.
02 Two ways of thinking about tax saving
There are three types of individual income tax rates: the first is comprehensive income, subject to an excess progressive tax rate of 3% to 45%,; the second is business income, which is subject to an excess progressive tax rate of 5% to 35%,; the third is interest, dividend, dividend income, property lease income, property transfer income and incidental income, subject to a proportional tax rate of 20%. The combined income tax rate is the highest of the three rates. Since the comprehensive income tax rate is high, can the comprehensive income be adjusted to other types of income?
1 Converted into dividend income
Can Via convert her combined income into dividend income at a 20% tax rate to reduce the tax burden? Let's settle the score for Via.
Dividend income is subject to a 20% tax rate, which seems to be much lower than the tax burden of up to 45% of comprehensive income, but it should be noted that dividend income is the amount of the company's after-tax profit distribution, that is, the dividends distributed by individual shareholders have paid 25% corporate income tax in the company, so the dividends obtained by individual shareholders are actually 40%. It can be seen that the conversion of comprehensive income into dividend income will not only have a tax-saving effect, but may also lead to an increase in the tax burden, which is not advisable.
2 Converted to operating income
Can Via convert her comprehensive income into business income and apply an excess progressive tax rate of 5% to 35% to achieve the purpose of reducing the tax burden? We continue to compare the tax burden with Via's annual income of 2 billion yuan, see the following table:
It can be seen that the tax-saving effect of converting the income from labor remuneration into business income is not obvious, but it increases a lot of operational troubles, and it is not a good idea. So is there a better way to cut taxes?
03 Via's tax-efficient transaction structure
How did Via design the transaction structure and end up evading such a large amount of tax? Let's take a look at Via's steps:
1 Depression shell
Since 2019, Wei Ya has successively set up a number of sole proprietorships and partnerships in Shanghai, hereinafter referred to as "shells". These "shells" do not have any substantive business activities, but only serve as a tool in Via's tax avoidance chain. See figure below:
2 Application for approval
These "shells" (including sole proprietorships and partnerships) set up by Via Investment apply to the competent tax bureau for the calculation and payment of personal income tax in the form of "approved collection".
3 Sign the agreement
These "shells" approved to collect individual taxes signed a "Service Agreement" with Qianxun Culture. According to the agreement, Qianxun Culture will pay Wei Ya's personal money into the "shell" account in the name of service fee. The "shell" issues VAT invoices to Humble Culture. See figure below:
4 Cash out of taxes
According to the amount of the service fee, the "shell" pays 6% VAT according to the modern service industry project, and issues a special VAT invoice to Qianxun Culture, which can deduct the input. "Shell" according to the taxable income rate stipulated by the Shanghai Taxation Bureau to verify the personal income tax of investor Wei Ya, Wei Ya paid personal income tax, the funds from the "shell" account. At this point, Via successfully converted the income from labor remuneration into business income under the approved expropriation method. After the above series of transfers, Via's personal tax burden was reduced by 650 million yuan, as shown in the table below.
04 What is wrong with Via?
On December 20, 2021, the official website of the Zhejiang Provincial Taxation Bureau disclosed the following information:
Between 2019 and 2020, Huang Wei falsely declared and evaded taxes by concealing the commission income obtained from the live broadcast platform; through the establishment of a number of sole proprietorships and partnerships such as the Shanghai Weihe Enterprise Management Consulting Center and the Shanghai Dusu Enterprise Management Consulting Partnership, the income from labor remuneration such as commissions and pit fees obtained by her personal engaging in live streaming was converted into business income for false declaration and tax evasion.
Combining the transaction structure of Weiya's tax evasion and the disclosure information of the Zhejiang Provincial Tax Bureau, we can summarize The Weiya tax evasion case into the following two key points:
1 Resulting type conversion
Via creates a series of "shells" to convert the income from labor remuneration into business income. What is "operating income"? Let's take a look at Ren Yu, director of the Income Tax Department of the State Administration of Taxation, on the business income:
Business income is similar to the business activities of legal persons with enterprise income tax, and business income has the following characteristics compared with other incomes: the stability of the organization; the continuity of the operation; and the activities of a single person, and there may be an employment relationship.
It can be seen that there are the following differences between business income and labor remuneration income:
Is the income obtained by Via from providing services to Qianxun Culture a business income?
First of all, the place where Wei Ya provides services is in Hangzhou, where Qianxun Culture is located, and a series of sole proprietorships and partnerships registered by Wei Ya in Shanghai are only "empty shells" set up for tax avoidance, and have not carried out any substantive business activities, let alone institutional stability and continuous operation.
Secondly, because Wei Ya's husband Dong Haifeng is the controlling shareholder of Qianxun Culture, weiya herself is the pillar anchor of Qianxun culture, in view of the special relationship between Weiya and Qianxun culture, Weiya lists all the costs and expenses related to live streaming and goods in Qianxun culture, and only Weiya's personal income remains in the Shanghai "shell". Therefore, the income that Wei Ya obtained from the humble culture is not "business income", but pure "labor remuneration income".
2 Illegal approval of expropriation
Although Via converts the income from labor remuneration into business income, after calculating the tax burden, we will find that a simple conversion does not necessarily reduce the tax burden, or the reduced tax burden is very limited. Therefore, the core key point of Via's tax evasion case is not "income type conversion", but "approved collection". The following is the personal income tax that Via needs to pay on business income under the method of audit collection and the method of approved collection. See the table below:
The same is business income, two different collection methods, will lead to a huge difference in Via's individual tax burden. So, is there a problem with the application for approved expropriation of the sole proprietorship and partnership of Via Investment?
Let's first look at the circumstances under which expropriation can be approved.
For individuals to obtain business income, there are two ways to tax personal income tax: one is to audit the collection; the other is to approve the collection. According to the provisions of the Tax Collection and Administration Law, the Tax Bureau has the right to verify the tax payable when the following 8 situations occur:
(1) Account books may not be set up in accordance with the provisions of laws and administrative regulations;
(2) Account books should be set up in accordance with the provisions of laws and administrative regulations but are not set up;
(3) Destroying account books or refusing to provide tax payment information without authorization;
(4) Although the account books are set up, the accounts are chaotic or the cost information, revenue vouchers, or expense vouchers are incomplete and difficult to check;
(5) Where a tax obligation arises, the tax declaration is not made in accordance with the prescribed time limit, and the tax authority orders the declaration within the time limit, and the declaration is still not made within the time limit;
(6) The taxpayer's tax calculation basis for declaration is obviously low, and there is no legitimate reason;
(7) Engaging in production or business for those who have not gone through tax registration in accordance with regulations;
(8) Temporarily engaged in business.
Of the 8 cases, only the first and eighth types are taxpayers without any fault, and the other 6 taxpayers have more or less certain faulty behavior. If it is the former, the taxpayer scale is relatively small, requiring taxpayers to calculate costs, expenses and other items according to the facts, not only will bring a heavy accounting burden to small and micro enterprises, but also increase the cost of tax collection and management, which is not in line with the principle of economic efficiency of taxation; if it is the latter, the tax bureau is required to check the accounts and levy, account for costs, expenses and other items to be taxed, which may lead to malicious tax evaders because they cannot accurately calculate the tax payable, and they will not get legal sanctions for a long time. It is against this background that the law regulates the collection and administration of approved expropriations.
Which of the 8 types of sole proprietorships and partnerships set up by Via? Neither belongs to the first type of books that can not be set up, nor does it belong to the 8th kind of temporary business, or even belongs to the fourth type, although the account books are set up, but the accounts are chaotic or the cost information, revenue vouchers, and expense vouchers are incomplete and difficult to check, because Wei Ya's "shell" does not have any cost expenses at all, only income, simple at a glance. In the case that the "shell" set up by Via has issued an invoice amount of tens of millions, and the "shell" has been identified as a general value-added tax person, it is not only unreasonable to approve the personal income tax of the investors of the "shell", but suspected of violating the law. It is precisely because of this that the Zhejiang Provincial Taxation Bureau resolutely attacked and imposed administrative penalties on Wei Ya. In addition, in the report released by the State Council in December 2021, we saw the following:
With regard to the problem of tax evasion by high-income personnel using the approved collection method, the State Administration of Taxation selects areas with more approved collections to carry out pilots, adjusts sole proprietorships and partnerships that meet certain circumstances to audit and collect accounts, strengthens the supervision of individual equity transfer and tax evasion, increases daily monitoring indicators, and improves accurate supervision capabilities.
It can be seen that the model of avoiding individual tax by setting up sole proprietorships, partnerships, etc., adopting the method of approved collection will be subject to increasingly strict control and supervision.
Author | Lee Lee Wai
Source | Xiding equity consulting