Editor's Note: Not having a reasonable commercial purpose is one of the main bases for tax authorities to adjust civil legal relations, restore the essence of transactions, and levy taxes on real transactions. In recent years, tax authorities in many places have exposed tax evasion cases in which related subjects are used to split income in order to defraud tax preferences, and the rationality of the existence of related subjects has been denied. Based on the typical cases published by the tax authorities, this paper analyzes the boundaries of reasonable business purposes and provides tax compliance suggestions for enterprises to adjust their structure in their operations.

I. A number of tax evasion cases involving split income were exposed, with empty shells, personnel and finance as the main features.

In practice, it is very common for affiliated enterprises such as molecular companies and the same group enterprises to carry out similar business, but there are many cases where income is split into affiliated entities with no commercial substance and preferential tax policies are applied in violation of regulations. In April this year, State Taxation Administration of The People's Republic of China exposed three tax evasion cases in which small-scale taxpayers were cheated to enjoy tax concessions through split operation, and in November, three tax evasion cases were exposed. In these cases, the relevant subjects were denied the rationality of existence because of the "empty shell" characteristics such as no personnel and no office space, or because of the confusion of personnel and finance, which led to the identification of splitting income, defrauding tax incentives and evading tax payment.

For example, in the tax evasion case of Guangxi Googoo Gou Business Secretary Co., Ltd. which was investigated and dealt with by the Inspection Bureau of Nanning Taxation Bureau in State Taxation Administration of The People's Republic of China, there were many branches under the involved enterprise, and the tax authorities found that there were doubts that "one company controlled more than one company, and the income was split up", and there were many unreasonable points in business, finance and human resources management. For example, the labor contract and social security of salespeople are adjusted and changed from time to time among different affiliated enterprises, but the work is arranged by the company in a unified way, and there is no substantial change in office, customers and business. Another example is that the same salesperson is managed by the same department head of the company for a long time, and his assessment and salary are co-ordinated by the company, and the affiliated enterprises only declare the salary cost in name.

The tax authorities finally decided that the company fictionalized the appearance of independent employment and independent accounting of each company, and artificially split the income of each company. First, it collected business money from its own corporate account or employee's personal account, but did not confirm the income in time, but included it in the advance accounts, and put it on the account for a long time. When the customer put forward the billing demand, it arranged for the corresponding affiliated companies to issue invoices separately by calculating the billing amount of each affiliated company, so as to ensure that the billing amount of a single company did not exceed the upper limit of small-scale taxpayers' tax incentives, so as to achieve a single split income. After investigation, the company concealed the actual revenue scale of the company by splitting income and adjusting personnel to affiliated enterprises many times, enjoyed preferential tax policies in violation of regulations, and paid less value-added tax, urban maintenance and construction tax and corporate income tax totaling 1,189,400 yuan. In view of its illegal facts, the Inspection Bureau of State Taxation Administration of The People's Republic of China Nanning Taxation Bureau qualitatively evaded taxes on the company according to law, and recovered taxes and fees, added late fees and imposed a total fine of 2,646,700 yuan.

In the above case, many affiliated enterprises are confused with the group company in terms of non-substantive operation, personnel, finance and business. The tax authorities deny their business appearance and think that the existence of affiliated enterprises and their business development are not commercially reasonable, which is an act of income splitting in order to cheat and enjoy tax benefits. Then, under what circumstances will the business carried out by an enterprise be deemed to be penetrated without reasonable commercial purpose? In other words, if an entity signs a contract with the counterparty, sells goods or services, and issues invoices, under what circumstances will the business carried out by the entity be penetrated into the business of the split entity? The above problems involve the key point of whether the development of related business has a reasonable commercial purpose. In addition to splitting income, whether the related party transaction pricing is fair, whether it meets the applicable conditions of special tax treatment, equity parity or low-price transfer transactions, etc. all involve the determination of reasonable commercial purposes-under what circumstances can the tax law deny the contractual relationship determined by civil and commercial laws according to the principle of substantive taxation, and then determine that the transaction arrangement is to obtain improper tax benefits and avoid paying taxes.

II. How to define whether it has a reasonable commercial purpose?

According to the provisions of the Law on the Administration of Tax Collection, the tax authorities are the administrative subjects in charge of tax work and undertake the collection and management of various tax and non-tax revenues within their jurisdiction. Therefore, tax authorities generally do not perform the function of identifying the nature of civil legal relationship, but in order to ensure the full collection of national taxes, tax authorities inevitably involve identifying and judging the nature of taxable behavior in the practice of collection and management, judging whether there is tax avoidance behavior of "covering up illegal purposes in a legal form", ensuring that trading behavior serves real economic needs, and adjusting and recovering taxes for those who evade paying taxes for unreasonable commercial purposes.

At present, China's tax law has not made a unified definition of "reasonable business purpose", and the existing provisions are scattered in anti-tax avoidance clauses. For example, the special tax adjustment chapter of the Enterprise Income Tax Law stipulates that "if an enterprise implements other arrangements that do not have reasonable business purpose and reduces its taxable income or income, the tax authorities have the right to adjust it in a reasonable way", and Article 120 of the Regulations for the Implementation of the Enterprise Income Tax Law further defines "not having reasonable business purpose", "Enterprise income tax" Anti-tax avoidance clauses are not directly applicable to tax evasion, false opening and other tax violations. As for how to define whether such tax evasion behaviors such as split income have reasonable commercial purposes, some people think that with reference to the above provisions, transactions with "no reasonable commercial purposes" usually have the following characteristics: First, the main or only result of the transaction is to reduce, exempt or delay the payment of taxes; Second, the transaction form is inconsistent with the economic essence, that is, "form is more important than substance"; Third, the transaction arrangement lacks independent commercial reasons. If the tax factor is excluded, the transaction will not happen or change its form.

Returning to the previous case, the tax authorities demonstrated that it "has no reasonable business purpose" from the following dimensions: First, the essence of personnel and business is confused. Although the contract subject changes frequently, the sales staff actually accept the same management and carry out the same business, which does not have the characteristics of independent operation of each affiliated company; Second, the billing behavior is out of touch with the service essence: the billing subject is not the subject that actually provides services, but is artificially allocated according to the tax preferential amount; Third, the tax interest orientation is obvious: if it is not split, the overall income scale of the enterprise will exceed the tax preferential threshold, and each company will "just" meet the preferential conditions after the split, and the tax evasion intention is obvious.

It is worth discussing that the application of the substantive taxation principle of "no reasonable commercial purpose" requires the tax authorities to bear the burden of proof, proving that the relevant related subjects of taxpayers have no actual business operations, and the transactions are carried out in order to obtain illegitimate tax benefits. If there is not sufficient evidence to prove that the relevant transactions have no reasonable commercial purpose and are adjusted, it will pose a threat to the stability of the civil transaction order and the legitimate rights and interests of the parties. In the above case, the tax authorities confirmed each other through the labor contract, social security records, salary payment process, bank flow, billing records and other evidence, which proved that the enterprises involved mainly aimed at obtaining improper tax benefits and lacked reasonable commercial substantive support.

III. How to grasp the "reasonable business purpose" in enterprise management?

Based on the above cases and the mainstream view of practice, this paper puts forward some compliance suggestions to consolidate the "reasonable business purpose" from the aspects of transaction essence and transaction pricing:

From the essence of the transaction, enterprises should pay attention to the rationality and necessity of the existence of multiple related subjects in the trade chain, especially when there is a tax difference between the subjects or a transaction subject is located in a "tax depression", which is more likely to lead to tax avoidance suspicion. For the purpose of establishing trading entities, we should consider the reasonable motives of establishing related entities, such as improving the flexibility of operation, improving corporate governance and strengthening risk management. In actual operation, enterprises should ensure that each transaction subject has independent assets, personnel and independent financial accounting to avoid confusion.

On the pricing of related party transactions, on the one hand, enterprises should strengthen the daily management of related party transactions, form a reasonable related party transaction arrangement scheme on the process and pricing policy of related party transactions before carrying out related party transactions, fully consider the essence of the transaction, the risk bearing of all parties, the cost sharing, etc., and keep written materials in the specific implementation process to prove that related party transactions are arranged in accordance with the principle of independent transactions, and can effectively sort out the business situation and self-certify when tax-related risks arise. On the other hand, we should pay attention to the actual tax burden level of related parties, improve the rationality of related pricing, and ensure that the transaction pricing conforms to the principle of fair market transactions. For those with low or high prices, we should keep relevant information to prove the rationality.

IV. Summary

To split the income of a business originally belonging to a certain business entity and cheat to enjoy tax benefits through related companies and other entities will easily lead to tax evasion, and because the split entity is not the real seller, its external invoicing behavior may also lead to administrative and criminal risks. Then the enterprise should raise the awareness of tax compliance, make clear the commercial motives and reasonable purposes of the establishment of each transaction subject, and play its due role in business development to avoid the situation that people are confused, funds are mixed, business is crossed and so on, which may easily lead to tax-related risks.