The 6th issue: Tax practice of large enterprises Wei Bin: Strategy towards tax disputes and tax uncertainty, brilliant and practical! 2019.7.11

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Posted by：Admin|Published：2019-10-30 17:43:19|hits：882

The sixth session of the course Practice of tax management for large enterprises, which was proposed by the China Taxation Institute of Large Enterprise and carefully planned by the school of Taxation of Jilin University of Finance and Economics was held on the afternoon of 30th June. Wei bin, deputy director of China Taxation Institute of Large Enterprise and President of Chung Rui Tax Group, is the speaker of this topic. He shared with more than 200 participants in terms of large enterprise restructuring cases, legal structure and tax uncertainty risks of pre-tax deduction.

Mr. Wei Bin said that the real purpose of the reorganization is not obtaining capital gains or property transfer gains through the disposal of assets, but adjusting the strategic structure of the enterprise to create the core competitiveness of the enterprise. Therefore, reorganization can generally improve the resource allocation of enterprises even for that of the whole society. It can also improve labor productivity, and expand the scale and efficiency of social operation, which is conducive to the growth of national financial revenue.

Combined with his own experience, Mr. Wei bin shared a typical case of large enterprise reorganization to the participants. Company A transfers a coal chemical project to company B. Regarding the subsequent annual enterprise income tax declaration, the in-charge tax authority raises doubts about the deduction of asset losses: exemption of entrusted loan and transfer of long-term equity investment. Firstly, the tax authority points out that the loss caused by transferring Company A and exemption of loan of the transferred Company B in this case is not covered by deductible losses of Announcement 25. The losses mentioned before are not corresponding to the type of loss listed in the announcement, and therefore cannot be pre-tax deducted; Secondly, the enterprise fails to complete the procedures of share transfer before December 31 of the restructuring year, and therefore the loss of equity transfer cannot be pre-tax deducted.

According to the requirements of the in charge tax authorities, Mr. Wei bin raised three defenses pursuant to the No. 25 announcement: First, Article 40 of No. 25 announcement does not restrain the loss of credit investment eligible to pre-tax deduction within the six listed situations; Second, referring to the Administrative Measures for Verification and Cancellation of Bad Debts of Financial Enterprises (2013 Revision) issued by the Ministry of Finance in 2013, debt relief is one of the cases entitled to reimbursement of investment loss. It should be noted that, this measure serves for the bad debt management of financial enterprises. However, we can observe that the types of investment losses for credit investment are diversified, not limited to the six situations listed in Announcement 25. Besides, the debt relief also belongs to the specified types of investment loss; Thirdly, the entrusted loan loss of company A fully complies with the Article 8 of enterprise income tax law and the relevant provisions that the actual and reasonable expenditures relevant with income generation can be pre-tax deducted if Article 50 of Announcement 25 can also be satisfied to guarantee the relevancy, reasonability and certainty of such expenses.

After several communication with the in charge tax authority, considering that the tax authority insists on the requirement of completing share transfer procedures before December 31 of the restructuring year, and the enterprise can declare the asset loss in the next restructuring year (the year for which the procedures for share transfer have been completed), and the loss shall be allowed to pre-tax deduction. Therefore, regarding the loss of long-term equity investment transfer in this case is pre-tax deductible. However, for the loss of entrusted loan exemption, the in-charge tax authority no longer requires for an upward adjustment of such loss.

Learning from this case, Mr. Wei bin put forward the following suggestions based on his 31 years' experience: Considering the complexity of the tax legal system in China, opinions between taxpayers and tax authorities regarding understanding and implementation of tax laws and regulations may inevitably be different. Facing with major restructuring asset losses, enterprises need to carefully analyze the restructuring plan combining with relevant regulations, and initiate active and efficient communication with the in charge tax authorities to safeguard the national tax interests and protect the own legitimate rights and interests.

In response to the risk of tax policy uncertainty, Mr. Wei bin shared seven strategies:

To tackle the risk of tax policy uncertainty, the legislative body can cooperate with involved parties to issue guidelines and timely improve relevant laws and regulations;

If the tax policy is not clearly stipulated, we shall follow the basic concept of tax law for understanding;

If there are no clear provisions for reference, we may refer to other laws and regulations as interpretation;

If there are no clear provisions for reference, we temporarily do the calculation pursuant to the accounting standard;

If the tax related matters are uncertain, we shall require the tax authority for judgment;

It is necessary to introduce mediation law to deal with tax disputes properly.

Maintain effective communication with the tax authority to resolve tax disputes.

It is reported that the course of Tax practice of large enterprises will invite Meng Jun, general manager of CNOOC's financial assets department, Liu Xiaohong, CFO of Lenovo Holdings Co., Ltd., and Zha Yongquan, director of the Institute of Taxation Scientific Research of Anhui Provincial Taxation Bureau of the State Administration of Taxation, to share the tax management knowledge in both theoretical and practical, covering the key issues, key services and innovation of taxation service and management of domestic and overseas large enterprises. They will respectively share their experience from the perspective of large enterprise, tax agent and tax authority.