What legal risks are tax residents facing in China?

Assets transferred to overseas accounts by illegal means cannot be hidden.

CRS is mainly aimed at the tax payment of overseas income of tax residents in a country (region). Judging from the actual situation in China, at present, some financial assets such as stock financial account deposits under the name of overseas individuals illegally leave the country by means of borrowing, false trade, false investment, etc., without paying taxes in accordance with the relevant tax laws and regulations of China, and are legally in a state of "should be declared but not declared".

With the implementation of CRS in China from 2065438 to September 2008, the tax-related information of overseas financial accounts of China tax residents is fed back to China tax authorities, and these "unpaid incomes" will face legal consequences such as tax payment. This is the primary risk faced by high net worth individuals in China in the exchange of tax-related information in global financial accounts. A real case that has been disclosed illustrates the legal risks of this illegal transfer of assets.

Through the China Representative Office of the International Joint Anti-tax Avoidance Center, the State Taxation Bureau of Country C made a request for assistance to State Taxation Administration of The People's Republic of China, China, hoping that China would provide the income and tax payment of X and L immigrants from China in China, and suspected that they had not truthfully declared their property and income in China and were suspected of tax avoidance. The couple, originally from Zhongshan City, Guangdong Province, immigrated to country C from June 5438 to February 2008, and have been paying taxes in country C on the basis of low income. After receiving the task, Zhongshan Local Taxation Bureau immediately set up a task force to conduct a comprehensive investigation on the entry and exit, asset purchase, equity ownership and capital flow of X and L couples, and at the same time check whether there are tax-related violations in China. By screening the transaction records of bank accounts under the names of the persons involved and their relatives provided by the banking institutions in our city 19, it is determined that X's mother is the actual investor of enterprise A, and enterprise A often transfers large sums of money to X's mother, and X's mother takes the production and operation income of her hidden shareholding enterprise for a long time on the grounds of borrowing, and then gradually transfers the domestic investment income to country C through the Hong Kong bank accounts of several family members. In the end, Zhongshan Local Taxation Bureau asked Enterprise A to withhold and pay X's mother's personal income tax of 34,743,700 yuan according to the project of "interest, dividend and bonus income".

It is dangerous to conceal the identity of tax residents by buying passports.

With the approach of CRS, various tax planning schemes follow. However, we must face up to the fact that CRS is fundamentally a serious legal problem. If the planning scheme is improper, there will be legal risks that cannot be underestimated.

According to the rules, the determination of tax resident status is the premise of financial account information exchange between countries (regions), so as to determine the object of information collection and exchange, and finally transfer the qualified financial account name, taxpayer identification number, address, account number, balance, interest, dividend and income from the sale of financial assets to the tax resident country (region) in the legal sense of natural persons through exchange. Recently, in order to avoid collecting and exchanging tax-related information of their overseas financial accounts, some individuals tried to hide their tax resident status in China by purchasing passports from other countries to avoid paying taxes. This has great legal risks.

Tax resident status is the basic basis for a country to carry out cross-border tax collection and management, and its standard is not based on passport or nationality standard, but on domestic laws of various countries. For example, Article 1 of China's Individual Income Tax Law clearly stipulates that if an individual has a domicile or no domicile in China, but has lived in China for one year, he shall pay individual income tax in accordance with the provisions of this law on his income obtained from inside and outside China. It can be seen that in the identification of taxpayers, China has adopted the standards of residence and residence time. Therefore, it is impossible to change China's tax resident status simply by purchasing a country's passport.

According to the provisions of Article 201 of China's current criminal law, a taxpayer who makes false tax returns or fails to declare by deception or concealment, and evades paying a large amount of tax and accounts for more than 10% of the tax payable, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention, and shall also be fined; If the amount is huge, accounting for more than 30% of the tax payable, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and shall also be fined. Therefore, it is likely to violate the crime of tax evasion stipulated in China's criminal law to conceal the identity of taxpayers by buying passports and not declare taxes.

Failure to declare and pay taxes according to law after CRS landing will face serious legal consequences.

In the past, some individuals used the information barrier between different countries and regions to hide their overseas income boldly, and did not declare and pay taxes to the competent domestic tax authorities, thus evading their tax obligations. After the implementation of CRS, this practice will not work, because with the exchange of tax-related information in global financial accounts, China's competent tax authorities will truly grasp the tax-related information of overseas accounts of Chinese tax residents. In this case, if the relevant taxpayers refuse to file tax returns or make false tax returns, they will face serious legal consequences.

Article 9 of China's Individual Income Tax Law clearly stipulates the duty of resident taxpayers to pay taxes on overseas income, that is, taxpayers who obtain income from outside China shall pay the tax payable to the state treasury within 30 days after the end of the year and submit tax returns to the tax authorities. If you don't comply, you will face punishment.

Article 63 of the Tax Administration Law stipulates that a taxpayer who forges, alters, conceals or destroys account books and vouchers without authorization, or overstretches expenditure or underreports income in account books, or refuses to declare or make false tax returns after being notified by the tax authorities, and fails to pay or underpays the tax payable, is considered as tax evasion. If a taxpayer evades taxes, the tax authorities shall recover the unpaid or underpaid taxes and late fees, and impose a fine of not less than 50% but not more than five times the unpaid or underpaid taxes; If a crime is constituted, criminal responsibility shall be investigated according to law.

Article 32 of this Law stipulates that if the taxpayer fails to pay the tax within the prescribed time limit and the withholding agent fails to pay the tax within the prescribed time limit, the tax authorities shall order him to pay the tax within the prescribed time limit, and a late fee of 0.5% of the overdue tax shall be added daily from the date of paying the tax.

The tax law also clearly stipulates that there is no subjective intention to pay less taxes. According to the relevant regulations, if the taxpayer or withholding agent fails to pay or underpays the tax due to the responsibility of the tax authorities, the tax authorities may require the taxpayer or withholding agent to pay back the tax within three years, but shall not charge a late fee. If a taxpayer or withholding agent fails to pay or underpays the tax due to miscalculation and other reasons, the tax authorities may recover the tax and overdue fine within three years; Under special circumstances, the recruitment period can be extended to five years. For tax evasion, tax refusal or tax fraud, the tax authorities shall recover the unpaid or underpaid taxes, late payment fees or tax fraud, and shall not be limited by the time limit specified in the preceding paragraph.

"There are only two things in the world that are inevitable, death and paying taxes." For Franklin's famous saying, if the high-net-worth people in China had some vague feelings before, then with the implementation of new systems such as CRS and natural person taxpayer identification number, the experience may become real. (from the tax newspaper)