Non-related parties have no tax liability when transferring funds for free

Tax-related issues regarding the transfer of funds to others for free. Article 1 of my country’s Interim Regulations on Business Tax stipulates: “Units and individuals that provide services specified in these regulations, transfer intangible assets, or sell real estate within the territory of the People’s Republic of China shall be taxpayers of business tax and shall pay the business tax in accordance with these regulations. Business tax. "Article 3 of the "Implementation Rules of the Interim Regulations on Business Tax" stipulates: "The provision of services, the transfer of intangible assets or the sale of real estate specified in the regulations in Article 1 of the Regulations refers to the paid provision of services, the paid transfer of intangible assets or the paid The act of transferring ownership of real estate. The term "paid" as mentioned in the preceding paragraph refers to the acquisition of currency, goods or other economic benefits. "Therefore, the transfer of funds (free loans) between companies or between individuals and companies, if no currency, goods or other benefits are obtained. Other economic benefits are not subject to business tax. Since there is no income reflected in the free loan, it does not involve corporate income tax issues.

What taxpayers need to pay attention to is that if an enterprise lends idle funds to another enterprise and agrees not to charge interest, but the other enterprise provides other services or goods to it at a lower than market price, it cannot Considered free of charge. As long as inter-enterprise borrowings do not charge interest, the tax authorities will explore possible channels for obtaining other economic benefits. If an enterprise obtains services or goods from another enterprise at a lower than market price or even free of charge, the tax authorities can determine that the enterprise's borrowing is a "paid" behavior based on this relationship, and then determine its taxable turnover. If it is indeed free of charge, the taxpayer is obliged to prove the legitimacy of his "free" borrowing reasons.

Transfer of funds by related parties requires tax adjustment

The premise that the transfer of funds for free does not involve business tax and corporate income tax is that there is no related relationship between the enterprises. If there is a related relationship, it needs to be adjusted Tax adjustments. Article 36 of the "Tax Collection and Administration Law" stipulates that business transactions between enterprises or institutions and sites established by foreign enterprises in China to engage in production and operation and their affiliated enterprises shall be collected or paid according to the business transactions between independent enterprises. Prices and fees; if prices and fees are not collected or paid according to business transactions between independent enterprises, thereby reducing their taxable income or income, the tax authorities have the right to make reasonable adjustments. That is, if there is a related relationship between the borrower and the borrower, the tax authorities have the right to determine the interest income and pay business tax and corporate income tax.

The "Implementation Measures for Special Tax Adjustments (Trial)" (Guoshuifa [2009] No. 2) stipulates that Article 109 of the "Enterprise Income Tax Law Implementation Regulations" and the "Implementation Rules of the Tax Collection and Administration Law" The so-called affiliated relationships mentioned in Article 51 mainly refer to one of the following relationships between an enterprise and other enterprises, organizations or individuals: (1) One party directly or indirectly holds more than 25% of the other party’s shares, or both parties directly or indirectly share the same The shares held by a third party exceed 25%. If one party indirectly holds shares of the other party through an intermediary party, as long as the shareholding ratio of one party to the intermediary party reaches more than 25%, the shareholding ratio of one party to the other party will be calculated based on the shareholding ratio of the intermediary party to the other party. (2) The loan funds between one party and the other party (excluding independent financial institutions) account for more than 50% of the paid-in capital of one party, or more than 10% of the total loan funds of one party are guaranteed by the other party (excluding independent financial institutions). (3) More than half of the senior management personnel (including board members and managers) of one party or at least one senior member of the board of directors who can control the board of directors are appointed by the other party, or more than half of the senior management personnel (including board members and managers) of both parties or At least one senior member of the board of directors who has control of the board of directors is also a third-party appointee. (4) More than half of the senior managers (including board members and managers) of one party simultaneously serve as senior managers (including board members and managers) of the other party, or at least one senior member of the board of directors who can control the board of directors of one party also serves as the senior manager of the other party. Senior member of the Board of Directors.

(5) The production and operation activities of one party must be provided by the other party with industrial property rights, proprietary technology and other franchise rights in order to proceed normally. (6) The purchasing or selling activities of one party are mainly controlled by the other party. (7) The acceptance or provision of labor services by one party is mainly controlled by the other party. (8) One party has substantial control over the production, operation, and transactions of the other party, or the two parties have other related relationships in terms of interests, including that although the shareholding ratio in item (1) of this article has not been reached, the major shareholding between one party and the other party Shareholders enjoy basically the same economic benefits, as well as family and kinship relationships.

There are also special cases in the adjustment of corporate income tax for related enterprises. The "Special Tax Adjustment Implementation Measures (Trial)" stipulates that in principle, no transfer pricing investigation or adjustment will be conducted for transactions between domestic related parties with the same actual tax burden, as long as the transaction does not directly or indirectly lead to a reduction in the country's overall tax revenue. No interest is paid on borrowings between domestic related parties with the same actual tax burden. Since one party is income and the other is expenditure, it does not affect the country's overall tax benefits, and in principle no adjustment is required. However, if there is a tax rate difference between related parties, for example, the interest income side has a high tax rate, while the interest deduction side has a low tax rate, if interest is not paid, it may cause a reduction in the country's overall tax revenue, and adjustments should be made. In addition, it needs to be made clear that the non-adjustment of such related party transactions is only limited to corporate income tax. If the business tax does not meet the conditions of independent enterprises, according to the provisions of Article 36 of the "Tax Collection and Administration Law", the enterprise does not comply with the conditions of independent enterprises. If prices or fees are collected or paid for business transactions between parties, thereby reducing their taxable income or income, the tax authorities have the right to make reasonable adjustments.

The interest paid on bank loans transferred to others for free shall not be deducted

About the tax-related issues of enterprise consultation on the transfer of bank loans to others for free. When an enterprise lends bank borrowings to others for free, it is essentially an act of transferring the benefits obtained by the enterprise to others. According to Article 8 of the Enterprise Income Tax Law, the actual and reasonable expenditures incurred by the enterprise related to the acquisition of income, including costs, , expenses, taxes, losses and other expenses are allowed to be deducted when calculating taxable income. Accordingly, if an enterprise transfers a bank loan to another enterprise free of charge, the interest paid has nothing to do with the income obtained, and the taxable income should be increased.

If an enterprise transfers all bank borrowings to others for free, and the bank borrowings enjoy fiscal interest discounts, according to the "Corporate Income Tax Policy Issues Regarding Fiscal Funds, Administrative Charges, and Government Funds" "Notice" (Caishui [2008] No. 151) stipulates that all types of fiscal funds obtained by an enterprise, except those that are state investments and require the return of principal after the funds are used, should be included in the enterprise's total income for the year. Fiscal funds refer to financial subsidies, subsidies, loan discounts, and other types of special financial funds obtained by enterprises from the government and its relevant departments. The fiscal subsidy received by the enterprise should be included in the total income of the enterprise for the year. The interest paid to the bank has nothing to do with the income obtained. The taxable income should be increased. The increase amount should be the full interest paid to the bank, not the amount after deducting the fiscal subsidy. balance.