Q: When a natural person transfers the equity (shares) of the invested enterprise, the tax basis for declaration is obviously low and there is no justifiable reason. What methods can the tax authorities use for verification?

Article 3 of the Announcement of State Taxation Administration of The People's Republic of China, People's Republic of China (PRC) on Checking and Approving the Tax Basis of Individual Income Tax on Equity Transfer (State Taxation Administration of The People's Republic of China Announcement [20 10] No.27) stipulates that the tax basis for reporting without justifiable reasons is obviously low, The following methods can be adopted to check the tax basis: (1) Check the income from equity transfer by referring to the net assets per share enjoyed by taxpayers or the share of net assets corresponding to the equity ratio. For enterprises with intellectual property rights, land use rights, houses, exploration rights, mining rights, equity rights, etc., which account for more than 50% of the total assets, the net assets must be assessed and verified by intermediaries. (2) refers to the income from equity transfer approved by equity transfer price, the same shareholder or other shareholders of the same enterprise under the same or similar conditions. (3) With reference to the equity transfer income approved by enterprises in the same industry in equity transfer price under the same or similar conditions. (4) If a taxpayer disagrees with the above-mentioned verification method adopted by the competent tax authorities, it shall provide relevant evidence. After the competent tax authorities find it true, they may adopt other reasonable verification methods.