Recently, Wang Mou lost the case against Shanghai Municipal Taxation Bureau and Qingpu District Bureau for tax refund 53.74 million yuan, which reduced the income from equity transfer by gambling compensation based on merger and acquisition results. The dispute in this case has become a hot topic in the capital circle, legal circle and fiscal circle.

Wang mou signed the agreement on issuing shares and paying cash to purchase assets and the profit forecast compensation agreement on issuing shares and paying cash to purchase assets with a listed company from December 2015 to June 2016. A listed company bought 50% of company B held by Wang mou with a cash consideration of 0.25 billion yuan and a stock consideration of 0.325 billion yuan. Wang paid a personal income tax of 50 million yuan on cash income in March 2017. Qingpu District Tax Bureau requested Wang to pay a supplementary tax of 64 million yuan on stock income in September 2017. Wang did not file a tax administrative reconsideration or lawsuit, and paid a supplementary personal income tax of 64 million yuan in November 2017. As the net profits of Company B in 2018 and 2019 did not meet the standards, Company A, listed company A, according to the Profit Forecast Compensation Agreement, requires Wang Mou to compensate Company A for the failure of the 2018 performance bet and Company A for the failure of the 2019 performance bet to compensate Company A for 20.73 million shares. The compensation method is that Company A repurchases the aforementioned shares for compensation at the price of 1 yuan and then cancels the shares. In October 2022, Wang Mou applied for a tax refund of 53.74 million yuan from the Qingpu District Tax Bureau for the reduction of the original stock income with the above compensation. After the tax refund application was rejected, Wang filed a tax administrative reconsideration with the Shanghai Municipal Taxation Bureau, which was still rejected. Wang then filed a tax administrative lawsuit with the Shanghai Railway Transportation Court, and lost the case in the first and second instance.

the reasons why the courts of first and second instance found that Wang mou's application for withdrawal could not be established mainly include:

1. The taxable fact, taxable amount and tax liability have been determined. The court held that the "Agreement on the Purchase of Assets" has determined the fact of equity transfer and the consideration for the transfer. According to Article 8, Paragraph 1, Item (IX) of the "Regulations on the Implementation of the Individual Tax Law", Wang's tax obligation has been generated and the amount has been determined. The tax paid by Wang belongs to the tax payable rather than the tax paid in advance, and there is no problem of settlement refund.

2. Wang mou's compensation for shares to listed company a because company B's profits did not meet the expected agreement does not affect the determination of taxable amount. The court held that the shares paid by A listed company to Wang had been registered and belonged to Wang, and Wang had received the proceeds of the transfer. A listed company's repurchase of shares of A listed company held by Wang for 1 yuan based on performance gambling compensation is a new administrative legal relationship, which does not change the original taxable facts and taxable amount.

3. Wang's tax refund application has exceeded the 3-year application period. According to Article 51 of the Tax Administration Law, taxpayers who find overpayment within three years from the date of settlement and payment of taxes shall have the right to apply for tax refund. Wang paid taxes in 2017 and applied for a tax refund in 2022, which has exceeded the legal three-year tax refund application period.

4. the compensation for performance gambling is the compensation for company B's operating risks, not the adjustment of the transaction consideration. The court held that the Agreement on Purchase of Assets and the Profit Forecast Compensation Agreement were independent legal contracts; the Profit Forecast Compensation Agreement, etc. did not agree on a price adjustment clause, but only agreed that Wang would compensate the transferee A listed company when the profit of the target company B did not meet the standard.

5. the court of second instance concluded that the prerequisite for applying for tax refund within the prescribed time limit was overpayment of tax, and Wang mou did not have the problem of overpayment of tax. Regarding the compensation behavior stipulated in the profit forecast compensation agreement, at present, there is no corresponding tax refund provision in the field of tax law. Therefore, Wang's tax refund application and litigation request have no basis.

1. just look at the contents of the agreement on the purchase of assets, the transfer target and transfer price are determined, and the tax obligation and amount are also determined. the amount of personal tax paid by Wang mou belongs to the payable but not the advance payment. The tax involved in this case itself does not involve the basis of sub-advance payment and maturity settlement, which belongs to the income paid on a per-payment basis.

2. The Asset Purchase Agreement and the Profit Forecast Compensation Agreement are independent contracts in legal form, however, in the essence of the transaction, the Profit Forecast Compensation Agreement shall be regarded as a supplementary agreement to the Agreement on the Purchase of Assets. In particular, if, in accordance with the taxation principle of "economic substance over legal form", the Agreement on the Purchase of Assets and the Agreement on Compensation for Profit Forecast should be considered as legal documents for the same taxable transaction. The economic essence of its transaction is: according to the forecast of the target company's profits, the transfer of consideration to give so much first, the profit during the gambling period does not meet the standard, the transfer of consideration to be calculated according to the agreement to return. From this point of view, the Profit Forecast Compensation Agreement is not a new civil and commercial legal relationship, let alone a new administrative legal relationship.

3. the tax principle of "economic substance is more important than legal form" is used by tax authorities in the tax collection process, penetrating the economic substance of transactions to achieve the purpose of tax collection, but rarely used in the tax refund process. Therefore, the court further held that even if the performance of the original transaction under the performance of the gambling compensation obligation, its tax refund application is not a tax law.

1. In this case, the stock consideration involves the risk of compensation back according to the performance gambling agreement. Therefore, when the tax authorities require Wang to pay back the tax on the stock income, Wang should promptly file administrative reconsideration and administrative litigation. If the stock has been returned due to the performance gambling during the litigation process, Wang's income and tax payable should be adjusted accordingly.

2. Optimize the pricing model for the transaction. To change the pricing model of "fixed consideration" plus "compensation for gambling", we can consider adopting the pricing model of "fixed price" plus "supplementary price", which can be expected and prepaid, so as to optimize the amount and point of occurrence of tax liability.

3. increase the degree of integration and relevance of the asset purchase agreement, equity transfer agreement and performance compensation agreement, and try to reflect in the agreed content that the performance gambling compensation is the adjustment and liquidation of the original transaction price.

4. The tax administrative reconsideration authority is relatively professional in handling tax-related affairs, and the taxpayer may bring a procedural, non-tax administrative act for reconsideration and litigation, and suspend the taxation administrative act. Tax disputes to the court, the tax authorities to win the confrontation and the court used to listen to or resort to the tax authorities professional advice of the way of thinking, usually increase the likelihood of taxpayers lost.