Tax trturn planning is a knowledge, we should exert our efforts on researching and applying the preferential policies, not on the flaw and disadvantages of current tax policies

 

The year 2004 and 2005 is very important for our tax system reform, a series relative documents will be launch, besides, the control power on tax sources of key enterprises will be enhanced, as well as enterprise scope. Because of the launch of new law, the new tax saving methods has appeared as well. Under this circumstances, it’s possible to reduce some kind of the tax afford. Therefore, various Tax trturn planning training has gained great popularity. From 11th, to 13th, Dec, one management service company cooperated with a Accountant Firm in Hanzhou held a Tax trturn planning forum and invited Mr. He Zhi Dong, who is thought to be “ the toppest professional in Tax trturn planning”, because of this, the participants doubled, gave the host a great surprise, and they had to use desks and chairs to treat the extra people. Why the small-and-medium enterprises are so interested in Tax trturn planning? How large is the space for them?

 

What’s the background of Tax return planning gaining more an more popular?

 

The main content of Tax trturn planning is the policy tendency, time and its effect on enterprises under the reform of new tax system, and the person who participates the draft of “Enterprise income tax law of People’s republic of China”becomes its attracting lecturer. Currently, it’s said that the training content not only includes new tax policies, but also includes “Income tax combination of both domestic and foreign enterprises”, and “how to coordinate new tax policy with ‘Enterprise accounting system’”,etc. In a word, Tax trturn planning is to use certain method or plan within legitimate scope, to reduce the tax burden of enterprises.

 

Because of the multiple tax system of our country, the clauses of taxation law are complicated and have low legal level(most of them are temporarily clausse or documents of state administration). Meanwhile, in order to standardize its implementation and operation, the judicial regulations became more and more particular and complicated, besides, you know, our tax law has changed frequently( such as the policy of export rebate, VAT, income tax ,etc). Therefore, it’s very necessary to enhance the propaganda and service of taxation law. Oppositely, in reality, neither the taxpayers understand the tax policies well.( especially the taxation preferential policies related with their own benefits), nor some tax administrators or tax affair agents. If the enterprise can effectively make use of current tax policy, it can improve enterprise Tax trturn planning, reduce operational cost, and increase profits. This is the Background of why the training of Tax trturn planning gaining popularity in China?

 

Currently, the taxation training classes are spring up rapidly, mainly aim on medium-high managerial staff of company, such as financial directors, financial managers, financial supervisors, CPAs and general managers, introduce the types and methods of saving-up tax,(such as VAT, business tax, consumption tax, income tax, etc), explain the specific theories and skills through cases.

 

Various research institution, Accountants firm and consulting company has already organized a lot of training classes, forums of Tax trturn planning. According to uncompleted statistics, there are more than400 this kind of training classes held every year. That is to say, there’s training everyday and with certain scale, moreover, the participants of every class are all more than 100persons, the most can reach 400. Beside various training class, there are medium training materials in the form of VCD and taxation training methods in the form of picture materials. Even on our official “ Chin taxation newspaper”, there are some research articles about Tax trturn planning as well.

 

Oppositely, it’s very interesting that, at this time, the taxation authorities have organized a lot of trainings and forums on tax anti-avoidance. Form 8th-12th, Nov, 2004, our State Taxation Administration held an international forum on tax anti-evasion in Xiamen. It mainly discussed the legislation of tax anti-avoidance, especially the taxation legislation and taxation administration on capital weaken, transfer pricing, foreign-invested company, etc. The attendance are many international taxation professionals from the taxation bureaus of Beijing, Tianjin, Shandong province, Jiangsu province, Hebei province, Zhejiang province, Guangdong province, Fujian province, Qingdao, Shenzhen, and Xiamen.

 

Tax return planning and taxation planning emerge as require

 

There’s no doubt for tax dodging, it has to be strictly striked，however， for tax avoidance, our country only can control it through continuously improving taxation law and tax return management. On 22th, June,2004, Our State Taxation Administration release the notice of “Enhancing the management on tax anti-avoidance”, it required different level’s taxation authorities adopt the effective measures, strengthen further management on tax anti-avoidance. Besides, it has especially pointed out the behaviors such as making use of tax-avoidance places, capital weaken, and false “processing imported materials”to avoid tax have to be prevented and controlled.

 

For example, the frequent tax-avoidance methods are as follows: To raise product purchasing price or reduce its selling pricing, so that the enterprise profits can be transferred to low tax region or tax exempt region. According to this, our state taxation administration strengthens the investigation on transfer pricing. It requires the tax authorities strictly exam and analyze the materials provided by enterprises, define the related transactions correctly and check their pricing whether or not is true, reasonable, besides, understand enterprises function and their industrial background, search the comparable enterprise information, and provide the evidences for selecting proper adjustment methods and reasonable adjustment schemes.

 

According to authoritative media report, “ In 2003, the average loss rate of foreign company had reached 51% to55%. Officer from The State Taxation Administration said, the reason of 2/3 of loss companies was not related with company operation, but with tax-avoidance. According to preservative estimation, our annual tax lost of foreign invested company already reached 30billion yuan” On 4th, Oct,2004, undergoing more than 1year, the “Advancing Pricing Arrangement”had released formerly. Mr. Wang Jun, a certified accountant in Hangzhou Accountant Firm said, “ This APA’s release is more like a signal, it shows large-scale tax anti-avoidance examination will be started within the year. Among it, the problems of foreign invested company on tax-avoidance will be frist”. Before the release of this regulation, the taxation authorities of Taizhou, Huzhou and Shaoxing had already signed the APA with their relative companies, realized the new breakthrough on tax anti-avoidance of Zhejiang Province.

 

Because of the release of new policies, the preferential policies for foreign invested company will become less and less, the methods of registering in tax-avoidance places, such as in Cayman Island, British Virgin Island will lose their effect. However, on the other side, the updated and more complicated tax avoidance skills are undergoing as well. The well-known tax affair experts, Mr. He Zhi Dong said, the tax return planning is a knowledge. In a narrow sense, tax return planning includes tax avoidance planning, tax saving-up planning, tax transfer planning(tax being transferred to consumers and suppliers); while in a broad sense, tax return planning should pay more attention on the research and application on tax preferential policies, not on the flaw, lack and disadvantages of current tax policies.

 

 Currently, most of the enterprises are not clear about the preferential policies, and only approach by other channels to reduce their tax amounts. The training institutions for tax return planning should help the enterprise to understand and make use of these policies, actually, the ‘planning’ space of this aspect is very broad. Within the allowance of taxation law, it makes sense that Chinese enterprises go abroad for investment and engage in relative business, avoid or reduce their tax through reasonably arranging their tax affairs.”, well-knows tax expert Mr. He Zhi Dong said.

Mr. He Zhi Dong said, tax return planning is a broad and profound knowledge. Although there’s possibility to exist tax-avoidance among various tax types, links and time fences, however, if we had complete taxation regulations and tax control system which is scientific, strict and efficient, the space of tax-avoidance is very small. “With the improvement of our legislation level, the tax avoidance space will be smaller and smaller.” Mr He Zhi Dong said as well. Since there’s the concept of“tax dodging planning” and “Tax avoidance planning”, the relative concept of “Taxation planning”appears. Mr. He Zhi Dong is the first person to raise the concept of Taxation Planning, which means our country should fully exert finance revenue and economic control function of taxation, through continuously improving taxation law and strengthening taxation management, punish the behaviors of taxation dodging, restrict tax avoidance , instruct the activities of tax saving up planning. Because currently, tax dodging is illegal behaviors, while tax-avoidance is contradicted with taxation legislation spirit, taxation planning means tax anti-dodging planning and tax anti-avoidance planning.

 

Notice on implementing taxation planning

 

What kinds of enterprises have big space for taxation planning? Theoretically, every enterprise has to make tax return planning. However, when making planning, there’s cost and risk, not all the enterprise can afford. When the enterprises make tax return planning, they should consider their ability as well. According to the professional expert’s suggestions, the following enterprises need to make tax return planning and their revenue will be improved a lot.

 

Enterprise is new or under registration. This kind of enterprise has big space for tax return planning. If makes tax return planning at the beginning of company establishment or new added projects, the enterprise can fully enjoys the relative preferential policies of our country.

 

Enterprise has weak financial accounting. It mainly expressed in two aspects: first, lacking of strict internal control system on finance accounting; second, the accountants are not qualified enough, cannot perform finance accounting properly. Both of this two aspects will easily cause finance and taxation risk, and huge finance loss will be made if unconsciousness. This kind of enterprise should standardize its finance and taxation accounting as soon as possible, make tax return planning and prevent finance and taxation risks.(Such as for small-scale taxpayers whose annual sales amount is between300,000yuan-100,00yuan, they should pay attention to the effect of VAT type transfer)

 

Enterprises which have big asset and income scale, complicated organization structure, operational activities, tax affairs and policies. For these enterprises, they have big space for taxation planning. However, if any problem appears, the taxation loss will be great as well. Such as for those large multi-region, multi-industry company groups, they can fully enjoy the advantages of tax return planning. Reversely, if they don’t make tax return planning, once there’s any problem, they will suffer great loss. Therefore, it’s worthy for those companies to make planning by spending a lot of energy. Currently, the tax advisories invited by many big enterprises are the evidence.

 

According to the notices on tax return planning, Mr. He Zhi Dong has given us the following principles.

 

Besides the enough understanding of enterprise decision making level on tax return planning, when making the planning, it cannot disobey taxation law. Besides, the enterprise has to watch closely the changing of taxation law , and consider to make the planning from whole view and long term strategy.

 

（1）When making tax return planning, the taxpayer have to consider it from full respects and evaluate himself correctly.

 

1. When making tax return planning, the tax payer can not only stare at certain tax type, but has to consider from the whole tax burden. From example, some schemes may lower certain tax type, but as o whole, it’s possible to affect the change of other tax type and increase the whole tax burden. Therefore, it’s not workable. 2. When making tax return planning, the taxpayer should pay attention to tax and non-tax factors, make tax planning comprehensively. For example, some planning schemes may save up a lot of tax amounts, but increase many non-tax factors, such as enterprise register expense, organization setup expense, freight fee, governmental regulated fee, etc, under this circumstance, the actual cost of this kind of scheme should be considered by integrating the tax and non-tax factors. 3. Tax return planning should focus on the best economy benefits, not lightest tax burden. If there’s any scheme can promote the best economy benefits of company under the situation of relative low cost, we should have no doubt, but adopt it. For example, the company has to pay income tax for its business operation. As we know, there’s two preferential tax rate for income tax: if the tax payable≤30,000yuan, the tax rate is 18%; if tax payable≤10,000yuan, the suitable tax rate is 27%. For example,In order to suit the low tax rate, the boss limits his business within a small scale, even if the tax amount is very low, it’s still not up to the principle of best and most benefits and cannot be adopted.

 

（2）The taxpayer should consider the tax return planning scheme through the entire management

 

Tax return planning which served for the entire benefits of company , is a method and means, not its final goal . if without recognizing it, it’s easy for the company make wrong decision. Fro example, in order to reduce the income tax, the company will waste a lot, increase the unnecessary expenditure; or in order to postpone revenue year and adjust tax deduction and exempt period, the company will neglect operation, and cause lasting deficits, etc. This unwise behavior will be very harmful to the company. For the enterprise, the right attitude should be attach great importance on its entire benefits, adopt suitable planning scheme. This scheme may not generate the lowest tax burden, but do make the after-tax benefits best.(Such as some of the companies in Wenzhou, in order to avoid tax, they applied for trust loan business. The result is: the beginning financing function of this business cannot be performed correctly, very unwisely)

 

（3）Taxpayer should have long-term perspective on tax return planning