Tax related issues during equity merger and acquisition
The State Administration of Taxation issued announcement of Individual Income Tax Management Methods on Equity transfer (Trial) " (Announcement No. 67 of 2014, the State Administration of Taxation, hereinafter referred to as" Notice No. 67, ") on December 7th, 2014, upgraded personal income tax management on equity transfer comprehensively from following aspects: confirmation and approval of equity transfer income, determination of original value of the equity, declaration and assistance obligations of both sides and the transferred company, the collection and management measures of tax authorities and so on.
1. Equity transfer transactions involving major assets, its price shall be determines based on the fair value of the assets. Announcement No.67 stipulates: If the transferred company owns land, housing and other major assets, the fair value of the net assets corresponding to the equity (rather than the book value) is as the standard to measure the equity transfer price is low or not. Moreover, Announcement No.67 stipulates to further tighten the conditions that evaluation report must be issued by the agency, the criteria must be assessed by the agency for verification was reduced to 20%.
2. Regardless of paying income tax for equity transfer or not according to requirement, it is required to truthfully report to the tax authorities.
3. Necessity to pay income tax or not, is mainly depend on whether the company has a profit relative to the original equity cost.
4. Article 16 of Announcement No.67 clearly stipulates: when the tax authority is approving and levying personal income tax, the equity original value of the transferee is determined according to sum of reasonable taxes and fees occurred in the ownership transfer, and equity transfer income of transferor is approved by the tax authorities.
5. Announcement No. 67 clearly stipulates that for individual who has acquired equity of the same company in multiple times, the "weighted average method" is determine the original value of the equity during partial shares transfer.
6. Announcement No. 67 shows more strict regulations than ever on taxpayers and withholding agents in what circumstances need to perform the corresponding obligation of declaration. According to Article No. 20 of announcement No. 67, under any of the following circumstances, the taxpayer and withholding agent shall make tax declaration to the competent tax authorities within 15 days of the following month in accordance with the law. (1) The transferee paid for full amount or partial amount of the equity transfer price; (2) The equity transfer agreement has signed and taken effect; (3) the transferee had actually performed the duties of shareholders or enjoy the rights and interests of shareholders; (4) With effect decision, registration or announcement by relevant state departments; (5) The fourth to seventh behavior of Article 7 in this management method has been completed; (6) The tax authorities identified the other evidence of ownership has already occurred.
7. Announcement No. 67 stipulates as the first time, transferred enterprise has the obligation to assist in the equity transfer, and makes the clearly definition for the specific contents of the assistance obligation, it is generally believed that the enterprises being transferred has obligations of withholding or assisting.