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【 Capital Markets Department 】
The purpose of this column is to share articles related to capital market taxation, we can provide IPO tax counseling, equity incentive plan design and planning, major shareholder reduction tax optimization, private equity fund structure construction management and planning, and other types of portfolio management related tax services.
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Following the need to pay 188 million yuan in 20 years, on the evening of April 10, Zangge Mining announced that its wholly-owned subsidiary, Golmud Zangge Potash Fertilizer Co., Ltd., received the "Notice of Tax Matters" (hereinafter referred to as the "Notice") issued by the Golmud Municipal Taxation Bureau of the State Administration of Taxation on April 9, 2024.
According to the content of the Notice, Zangge Potash Fertilizer and Golmud Zangge Lithium Co., Ltd., a wholly-owned subsidiary of the Company, are affiliated enterprises, and from 2021 to 2023, Zangge Potash Fertilizer sold brine to Zangge Lithium, which is compared with the brine sales price of other taxpayers in the region
According to the company's preliminary calculation, from 2021 to 2023, Zangge Potash Fertilizer needs to pay a total of 398 million yuan of value-added tax, resource tax, enterprise income tax and other related taxes and fees, and pay a total of 81.7196 million yuan in late fees, with a total payment of 480 million yuan.
Fairness of pricing of related party transactions
Through related-party transactions and unfair pricing, profits can be redistributed among enterprises, and profits in different tax areas within the group can be adjusted accordingly to achieve tax savings. Therefore, related-party transactions have always been the focus of review by the regulatory authorities.
Related-party transactions do not necessarily lead to the occurrence of harmful consequences, and related-party transactions should have commercial substance and the price should be fair. Whether the transaction price is fair is the core element for judging whether the related party transaction has caused losses to the company.
Article 84 of the Civil Code stipulates that the controlling investors, actual controllers, directors, supervisors and senior managers of a for-profit legal person shall not take advantage of their affiliation to harm the interests of the legal person;
Article 22 of the Company Law stipulates that the controlling shareholders, actual controllers, directors, supervisors and senior managers of a company shall not use their affiliated relationships to harm the interests of the company. Anyone who violates the provisions of the preceding paragraph and causes losses to the company shall be liable for compensation.
In previous years, the issue of fairness in the pricing of related-party transactions has always ranked first, accounting for the highest proportion.
The Guidelines for the Application of Regulatory Rules – Issuance No. 4 require issuers to disclose sufficient information on the necessity, reasonableness and fairness of related party transactions.
The Administrative Measures for the Registration of Initial Public Offerings require issuers to disclose related parties, related party relationships and related party transactions in accordance with the Company Law, Accounting Standards for Business Enterprises and the relevant regulations of the China Securities Regulatory Commission. The issuer should disclose the overall situation of related party transactions during the reporting period, and disclose the related party transactions and the impact of related party transactions on the issuer's financial position and operating results according to the nature and frequency of transactions, according to the regular and occasional classification. Issuers should distinguish between material connected transactions and general connected transactions, and disclose the criteria and basis for judging material connected transactions.
2023 Some tax-related inquiry cases
Huaqin Technology Co., Ltd. explained whether there was any evasion of tax burden through unfair transaction pricing between subsidiaries based on the differences in corporate income tax of each subsidiary, the pricing and scale of internal transactions
Whether the previous business combinations of Adopt a Cow Holding Group Co., Ltd. belong to business combinations under the same control and the basis for judgment, the basis for confirming the merger date/purchase date, the basis for determining the transaction consideration, whether the transaction consideration is reasonable, the source of transaction funds, the accounting treatment and whether it complies with the relevant provisions of the Accounting Standards for Business Enterprises, and the tax obligations and performance involved
Fuling Technology Co., Ltd. explained the difference between the average sales unit price, unit cost and gross profit margin of similar products sold for export and domestic sales and the analysis of the reasons, and the matching of overseas sales with customs declaration, export tax rebate and other data
The tax authorities have strict regulatory requirements for related party transactions, aiming to prevent enterprises from evading taxes through unfair related party transactions, and to safeguard the national tax rights and interests and the order of fair market competition. In accordance with the relevant provisions of the mainland tax law, the tax authorities can review, assess and investigate whether the business dealings between an enterprise and its related parties comply with the arm's length principle.
According to Article 41 of the Enterprise Income Tax Law of the People's Republic of China, if the business dealings between an enterprise and its related parties do not comply with the arm's length principle and reduce the taxable income or income of the enterprise or its related parties, the tax authorities have the right to adjust it in accordance with reasonable methods. The costs incurred by an enterprise and its related parties in jointly developing or transferring intangible assets, or jointly providing or receiving services, shall be apportioned in accordance with the arm's length principle when calculating the taxable income. Article 44 stipulates that if an enterprise fails to provide information on its business dealings with its related parties, or provides false or incomplete information that fails to truly reflect its related party business dealings, the tax authorities shall have the right to verify its taxable income in accordance with the law.
"Reasonable methods" as used in Article 41 includes:
(1) The comparable uncontrolled price method refers to the method of pricing according to the price at which the parties to the transaction have the same or similar business dealings that are not related; The comparable uncontrolled price method can be applied to all types of related party transactions.
(2) The resale price method refers to the method of pricing according to the price of goods purchased from related parties and resold to non-related parties, minus the gross sales profit of the same or similar business; Generally, it is applicable to simple processing or simple purchase and sale business where the reseller has not changed the appearance, performance, structure or changed the trademark of the goods.
(3) The cost-plus method refers to the method of pricing according to the cost plus reasonable expenses and profits; It is usually applicable to the purchase, sale, transfer and use of tangible assets, the provision of services or related party transactions of financing.
(4) The transaction net profit method refers to the method of determining profits according to the level of net profits obtained by the parties to the transaction that are not related to the transaction from the same or similar business dealings; It is generally applicable to related party transactions such as the purchase, sale, transfer and use of tangible assets, the transfer and use of intangible assets, and the provision of labor services.
(5) The profit split method refers to the method of distributing the consolidated profits or losses of an enterprise and its related parties among all parties using reasonable standards; It is usually applicable to situations where the related-party transactions of various participants are highly integrated and it is difficult to evaluate the transaction results of each party separately.
(6) Other methods that conform to the arm's length principle.
When the tax authorities verify the taxable income of an enterprise in accordance with the provisions of Article 44 of the Enterprise Income Tax Law, they may adopt the following methods:
(1) Approve with reference to the level of profit margins of similar or similar enterprises;
(2) Approved in accordance with the method of enterprise costs plus reasonable expenses and profits;
(3) Approve the assessment in accordance with a reasonable proportion of the overall profits of the affiliated enterprise group;
(4) Approve in accordance with other reasonable methods.
In the 2023 Top 10 Most Concerned Tax Topics on our Official Account, the article "Tax-related Risks of Related Party Transactions" is also firmly ranked first! This article will not be introduced, and you can check the previous articles for details.
Compliance advice
In practice, many bosses often own multiple enterprises, have a multi-level corporate shareholding structure or enterprise group. Related-party transactions between members of an enterprise have become one of the daily business activities of an enterprise. For example, the purchase and sale of goods, consulting service fees, R&D expenses, capital exchanges, asset transfers and other behaviors between affiliated enterprises are prone to tax risks if they are not careful.
However, many business owners do not understand the tax-related issues of related party transactions, and they may not be good at corporate finance. Related-party transactions are prone to hidden dangers of tax problems, and over- or under-pricing of related-party transactions may be subject to tax adjustment by the tax authorities.
It is suggested that enterprises need to enhance their awareness of risk prevention and control, abide by the arm's length principle, and seek the assistance of professional institutions to avoid unnecessary tax risks if they are not sure about the tax policy.
Written by: Caizi
Typesetting: Chen Wen
头条抖音公众号：大公Tax
The content of this article is for general information purposes only and does not constitute the provision of any professional advice or services. Nothing provided herein should be construed as formal tax, accounting, or legal advice.
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