Editor's Note: The Zhejiang Provincial Taxation Bureau's Inspection Bureau made public to the public the online anchor Huang Wei (online name: Weiya)'s tax related violations from 2019 to 2020, and made a decision to pursue the payment of taxes, impose overdue fines, and impose a total penalty of 1.341 billion yuan, causing a public uproar. However, this matter was not sudden. As early as 2021, the State Administration of Taxation had issued multiple documents requiring practitioners in the live streaming marketing industry to conduct tax self-examination. From Weiya's apology letter, we can also see that Weiya conducted a tax self-examination this year. Here's a question: Why does Weiya still face tax administrative penalties after her self inspection? How can anchors in the process of self inspection avoid and resolve the risk of being identified as "tax evasion" in the remaining nine days? See discussion in this article for details.

 

1、 Tax big data has already pointed to the online live streaming industry

 

On April 23, 2021, the State Internet Information Office, the Ministry of Public Security, the Ministry of Commerce, the Ministry of Culture and Tourism, the State Administration of Taxation, the State Administration of Market Supervision and Administration, and the State Administration of Radio and Television jointly issued the "Measures for the Administration of Live Online Marketing (for Trial Implementation)" (hereinafter referred to as the "Measures"), which stipulates in Article 16, "The live streaming marketing platform should prompt the operators of the live streaming room to handle market entity registration or tax registration according to law, truthfully declare their income, fulfill their tax obligations according to law, and enjoy tax benefits according to law. The live streaming marketing platform and live streaming marketing personnel service institutions should fulfill their withholding and payment obligations according to law." This is the first time that the state has specifically clarified the tax related issues of the live streaming marketing platform and live streaming marketing personnel service institutions in the form of legislation, It is enough to see the importance that the country attaches to the tax related issues in the online live streaming industry. On April 29, the Inspection Bureau of the State Administration of Taxation released the "Opinions on Further Deepening the Reform of Tax Collection and Management" on its website, in which it was named to conduct key inspections on industries and fields such as the production and processing of agricultural and sideline products, the acquisition and utilization of waste materials, the purchase and sale of bulk commodities (such as coal, steel, electrolytic copper, and gold), for-profit educational institutions, medical beauty, live streaming platforms, intermediaries, and equity transfer for high-income groups. Therefore, the tax related issues in the online live streaming industry have long been the focus of tax authorities at the beginning of this year.

 

On September 18th, the General Office of the General Administration of the People's Republic of China issued a notice calling for strengthening the tax management of employees in the field of cultural and entertainment. The notice proposed that "further strengthen the daily tax management of employees in the field of cultural and entertainment,... We should regularly carry out tax risk analysis, and in the near future, in combination with the handling of the final settlement of personal income tax in 2020, we should conduct one-on-one risk alerts and urge rectification for star artists and network anchors with tax risks."

 

Against the background of the above multiple documents, it is not difficult to speculate that big data will shift the focus of tax risk monitoring to the online live streaming industry. The person in charge of the Inspection Bureau of the Hangzhou Municipal Taxation Bureau also disclosed to the public that the source of the case of Weiya's tax evasion came from the analysis and evaluation of tax big data.

 

 

2、 Why is Weiya still identified as "tax evading" after a tax self-inspection

 

The "Notice on Strengthening the Tax Management of Employees in the Cultural and Recreational Industry" issued by the State Administration states that "those who can proactively report and promptly correct tax related issues before the end of 2021 can be given a lighter, mitigated, or exempted punishment in accordance with the law; those who refuse to cooperate with the tax authorities in investigating, verifying, and supervising the rectification work shall be ordered to limit the rectification in accordance with the law, and the competent department of the industry and the industry association shall be requested to assist in urging the rectification; if the circumstances are serious, they shall be seriously investigated and punished in accordance with the law.", After referring to the case of Fan Bingbing's tax evasion, the State Administration issued the "Notice on Further Regulating the Tax Order in the Film and Television Industry" (SZF [2018] No. 153), which stipulates that "all film and television enterprises and employees who conscientiously conduct self-inspection, self correction, and actively pay taxes before the end of December 2018 shall be exempt from administrative penalties and fines.".

 

According to the above documents, if conducting an industrial tax self inspection, taxpayers only need to: first, proactively report before the specified date; Secondly, by actively paying taxes and correcting tax related issues, tax penalties can be exempted.

 

According to the information disclosed by the Inspection Bureau of the Hangzhou Municipal Taxation Bureau, Weiya "after being repeatedly reminded and urged by the tax authorities, the rectification was not complete, so she filed a case and conducted comprehensive and in-depth tax inspections in accordance with the law and regulations." In other words, although Weiya conducted a tax self-inspection, she did not correct her tax related issues, and her tax self-inspection did not comply with the regulations.

 

3、 The tax evasion method adopted by Weiya gives taxpayers a warning

 

（1） The tax evasion method adopted by Weiya

 

 

According to the public information provided by the Inspection Bureau of the Hangzhou Municipal Taxation Bureau, Weiya's main methods of tax evasion include: 1. concealing commission income and making false declarations; 2. The establishment of a sole proprietorship enterprise or partnership enterprise to falsely declare the conversion of labor remuneration income into business income; 3. The income obtained has not been declared according to law.

 

According to the first paragraph of Article 63 of the Law of the People's Republic of China on the Administration of Tax Collection (2015 Amendment), "A taxpayer who forges, alters, conceals, or destroys account books or accounting vouchers without authorization, or overstates expenses or omits or understates income in the account books, or refuses to declare or makes false tax returns after being notified by the tax authorities to do so, or fails to pay or underpays the tax payable, is guilty of tax evasion." Therefore, The first and third points that Weia touched on are relatively "obvious" in terms of tax evasion.

 

In this case, the most discussed method lies in the second method, namely, establishing an independent and partnership enterprise to convert "income from labor remuneration" into "operating income" for tax declaration. This approach is widely used in many industries because it is mistakenly considered "reasonable tax avoidance tax planning.". For example, in the case of online red Sydney's tax evasion, during the period from 2019 to 2020, Sydney evaded personal income tax of 30369500 yuan by establishing sole proprietorship enterprises such as Beihai Chengxi Marketing Planning Center and Beihai Ruichen Marketing Planning Center, and fictionalizing businesses to convert income from personal salaries and labor remuneration into operating income from sole proprietorship enterprises. Another example is Weiya in this case, who has established several individual proprietorship enterprises, such as Shanghai Weihe Enterprise Management Consulting Center and Shanghai Dusu Enterprise Management Consulting Partnership, to create fictitious businesses, and converted her personal labor remuneration income from engaging in live streaming, such as commissions and pit fees, into business income.

 

（2） Transforming income from labor remuneration into business income is "tax evasion" rather than "reasonable tax avoidance"

 

According to the Individual Income Tax Law, income from labor remuneration is taxed at an excess progressive tax rate of 3% to 45%, and business income obtained by individuals is taxed at an excess progressive tax rate of 5% to 35%. "For sole proprietorship enterprises and partnerships, individual income tax is levied on the basis of business income.". In other words, after converting labor remuneration income into business income, the maximum tax rate becomes 35%. "If the accounting books of an individual or partnership enterprise are not complete, the information is incomplete, and it is difficult to verify the accounts, or for other reasons, it is difficult to accurately determine the amount of tax payable, the tax department may adopt the method of approved collection to collect tax on operating income.". Under the approved collection conditions, the enterprise calculates the tax payable based on the amount of operating income multiplied by the taxable income rate, and then applies the corresponding tax rate.

 

Taking the individual income tax of a sole proprietorship enterprise as an example, if the approved collection method is followed, the taxable income rate is generally around 10% - 20%, so even if the maximum marginal tax rate of 35% of operating income is applied, the actual tax burden rate is only around 5%. In other words, by converting income, Weia reduced the tax burden rate from around 40% to 5%.

 

From the Shirley case to the Weiya case, we can see that the act of converting labor remuneration income into business income and reducing the tax burden rate through approved collection has already constituted "false tax declaration" under Article 63 of the Tax Administration Law, which is further characterized as "tax evasion.". Taxpayers should learn from this and prevent tax related risks.

 

4、 Network anchors should seize the last opportunity to do a good job of tax self-examination and resolve tax risks

 

"The Notice on Carrying out Comprehensive Governance Work in the Field of Cultural and Entertainment stipulates that" the investigation, punishment, and exposure of typical cases of tax evasion in the field of cultural and entertainment should be strengthened in accordance with the law and regulations. "Article 14, paragraph 3, of the Administrative Measures for Online Live Broadcasting Marketing (for Trial Implementation) stipulates that:, "The live streaming marketing platform should establish a blacklist system to blacklist live streaming marketing personnel who have serious violations of laws and regulations, as well as those who have caused adverse social impact due to their violation of laws and ethics, and report to the relevant competent authorities." That is, if a network anchor has tax violations and is punished, it may be exposed, but once exposed, it may be included in the "blacklist" considering its adverse social impact, Thereby being banned from the industry.

 

Today, the Jiangsu, Zhejiang, Shanghai, and Guangdong tax bureaus issued a notice requiring network anchors to complete their self examination before December 31, 2021. So, with nine days to go before the end of this year's tax self-examination, how should employees who are conducting self-examination do a good job of self-examination to prevent being identified as "tax evasion" due to inadequate self-examination?

 

 

Referring to the author's recent experience in assisting network anchors in conducting tax self inspections, we suggest that network anchors do the following work well in their self inspections:

 

1. Self inspection on whether there are any false tax returns involving the establishment of multiple individual businesses, sole proprietorship enterprises, and partnerships, the signing of false contracts at various levels, the transfer of income, and the conversion of "labor remuneration income" into "business income.".

 

2. Self check whether there is any act of concealing income or failing to file tax returns on schedule. If the pit fees and rewards obtained are not truthful and the tax declaration is not completed on schedule.

 

3. If the network anchor and the live broadcast platform form a labor contract relationship, the anchor obtains "salary and salary income", and the platform checks whether the individual income tax is withheld and paid in full on schedule.

 

4. If the network anchor and the live broadcast platform form a labor relationship, the anchor obtains "labor remuneration income" from the platform, and checks whether the platform has withheld personal income tax based on this income type. If the platform does not withhold and remit, the anchor should declare on his own.

 

If the studio, sole proprietorship enterprise, or partnership established by the anchor has approved expropriation, special attention should be paid to whether it meets the conditions for "approved expropriation". If there is a situation of conversion gains, they should be actively rectified in the self-inspection report.

 

(This article is translated by software translator for reference only.)