Editor's note: The Supreme People's Court and the Supreme People's Court issued judicial interpretations in March 2024 provide detailed explanations on crimes that endanger tax collection and administration, and in addition to the provisions on taxpayers' tax-related crimes, they also contain provisions on the conviction and sentencing of tax-related crimes of withholding agents. From the perspective of mainland legal provisions, the legal risks and liabilities of withholding agents are basically the same as those of taxpayers, and may even face broader convictions in criminal law, this article will start from the connotation of withholding agents, and analyze and sort out the administrative and criminal liabilities faced by withholding agents for failing to perform their withholding obligations from the perspectives of tax collection and administration law and criminal law, respectively, in order to reduce the compliance risks of withholding agents.
1. What is a "withholding agent"?
(1) The concept of withholding agent
The Law of the People's Republic of China on the Administration of Tax Collection and Collection stipulates that withholding agents are entities and individuals that have the obligation to withhold and remit, collect and remit taxes according to laws and administrative regulations. It can be seen that there are three key points to pay attention to in understanding withholding agents: (1) withholding agents are not limited to units, but also include individuals, such as individual income tax withheld and paid by enterprises on employees' wages, and individual withholding and payment of individual income tax by the transferee when transferring equity between natural persons; (2) its withholding obligations are stipulated by laws and administrative regulations, and the legal level of setting the withholding obligations is relatively high; (3) The withholding obligation includes withholding and remitting, and collection and remitting, withholding and remitting refers to the behavior of the units and individuals with withholding obligations withholding taxes and releasing them to the tax authorities when making payments, while collecting and remitting is the behavior of the units and individuals with withholding obligations collecting taxes and paying them to the tax authorities when collecting the payments, and the distinction between the two will not be repeated here.
(2) The legislative purpose of the withholding agent system
So why is there a withholding agent system? On the one hand, it guarantees the collection of taxes from the source of taxation to avoid the loss of taxes in transactions; On the other hand, it is conducive to reducing the cost of collection and management, and in terms of the withholding and payment of individual income tax by enterprises to employees, the cost of controlling the tax payment behavior of enterprises is lower than the cost of controlling the tax payment behavior of individuals, which improves the administrative efficiency of the tax department to a certain extent. At the same time, in order to avoid unduly increasing the obligations of withholding agents or imposing withholding obligations on non-withholding agents, the Tax Administration Law stipulates that the withholding obligations of withholding agents shall be set by laws and administrative regulations, and the tax authorities shall not require entities and individuals that are not required by laws and administrative regulations to withhold or collect taxes on their behalf, which is also a concrete embodiment of the state's protection of citizens' rights and obligations under the rule of law.
(3) The legal obligations of the withholding agent
The primary obligation of the withholding agent is to withhold or collect the tax on behalf of the withholding agent, and the tax authorities shall pay the withholding agent a handling fee for withholding and collecting on behalf of the withholding agent in accordance with the regulations. For ease of understanding, the obligation to withhold (collect) and pay on behalf of others can be split into two acts: "withholding (collection)" and "payment". For "withholding (collection)", that is, the withholding agent first withholds or collects taxes when paying or receiving money, if the taxpayer refuses the withholding agent to perform the withholding obligation in accordance with the law, the withholding agent shall report to the tax authorities in a timely manner. For "payment on behalf of the taxpayer", that is, the withholding agent pays the amount to the tax authorities within the time limit prescribed by laws and administrative regulations or determined by the tax authorities in accordance with the provisions of laws and administrative regulations, and if the tax is not released within the prescribed time limit, the tax authorities shall impose a late payment penalty of 5/10,000 of the overdue tax on a daily basis from the date of the overdue tax payment, in addition to ordering the payment within the prescribed time limit. In addition, when a withholding agent withholds or collects tax on behalf of the taxpayer, if the taxpayer requests the withholding agent to issue a tax withholding or collection certificate, the withholding agent shall issue it.
(4) Provisions on withholding of specific taxes
Specifically, laws and administrative regulations provide detailed provisions on withholding agents for various types of taxes.
2. The risk of administrative violations caused by the withholding agent's failure to withhold and remit
(1) The withholding agent's legal liability for failing to withhold (collect).
If the withholding agent fails to withhold or collects the tax that should be withheld but not collected, it is a situation of failing to perform the withholding obligation, and will face an administrative penalty of a fine of not less than 50% but not more than three times the amount of the tax that should be withheld but not withheld or receivable. For example, the Individual Income Tax Law stipulates that if the withholding agent fails to withhold, the taxpayer shall declare and pay the individual income tax, and if the taxpayer also fails to pay, the unpaid tax shall be recovered by the tax authorities from the taxpayer. Then, if the withholding agent should withhold the tax that has not been withheld or receivable but has not been collected, can the tax authorities still impose penalties on the taxpayer when recovering the tax from the taxpayer? If a taxpayer is penalized, does it violate the principle of "no penalty in one case"? In practice, some tax authorities believe that the withholding agent's failure to perform the withholding obligation and the taxpayer's failure to perform the tax obligation are two illegal acts, and the punishment of the withholding agent is the punishment for the failure to perform the withholding obligation, and the punishment of the taxpayer is the punishment for the failure to declare and pay the tax. In administrative litigation, the court may hold that both the withholding agent and the taxpayer's declaration and payment are based on the collection of the same tax, and the "one thing" should be fined only once.
(2) The legal liability of the withholding agent for the withholding (collected) unpaid or underpaid tax
If the withholding agent fails to pay or underpays the tax payable within the prescribed time limit, and fails to pay it within the time limit after being ordered by the tax authorities, the tax authorities may also impose a fine of not less than 50% but not more than five times the amount of the tax not paid or underpaid, in addition to taking compulsory enforcement measures to recover the tax not paid or underpaid. Compared with withholding and not withholding (receivable but not collecting), the withholding agent's behavior of withholding (collecting) unpaid or underpaid is more severe and socially harmful, and its behavior is equivalent to withholding state taxes. For taxpayers, their taxes have been withheld or collected, which is equivalent to having completed the obligation to pay taxes, while for withholding agents, the act of withholding (collecting) has been completed, but has not been released, and the taxes have flowed to the withholding agent, so the tax authorities will directly recover the tax and impose a fine on it.
In particular, if the withholding agent fails to pay or underpays the withheld or collected tax by means of (1) falsifying, altering, concealing, or destroying account books or accounting vouchers without authorization, or (2) overstating expenses or omitting or understating income in the account books, or (3) refusing to file a declaration after being notified by the tax authorities, or (4) making false tax returns, the tax authorities shall recover the taxes, impose a late payment penalty, and impose a fine of not less than 50% but not more than five times the amount of the tax not paid or underpaid, and if it constitutes a crime, it will also be investigated for criminal liability. Judging from this provision, the withholding agent's use of the above-mentioned means is actually determined to be tax evasion under the Tax Administration Law, that is to say, the withholding agent can also constitute tax evasion, and if it constitutes tax evasion, the tax authorities are not subject to the limitation of the recovery period.
In practice, judicial auction contracts generally stipulate a "tax package" clause, that is, the transferee shall bear all taxes and fees in the course of the transaction, including those that should have been borne by the transferor. If the transferee fails to pay the tax on time, it may be found to be "withheld and not paid" and subject to administrative penalties, and if the above four measures are adopted, it may also be found to be tax evasion and even bear criminal liability. For example, the Hainan Provincial Taxation Bureau of the State Administration of Taxation mentioned in the tax administrative penalty decision issued to Wu Mouhua on March 28, 2024, that Wu Mouhua and Wang Moubing agreed in the contract that all taxes and fees for the transfer of personal state-owned land use rights would be borne by Wu Mouhua, and the tax authorities believed that Wu Mouhua did not pay the deducted personal income tax of 1,172,955.51 yuan in accordance with the regulations when making the payment. Article 63 of the Law of the People's Republic of China on the Administration of Tax Collection and Collection shall determine that it is tax evasion, and the tax shall be recovered, a late fee shall be imposed and a fine of double shall be imposed.
3. The risk of criminal liability for the withholding agent's failure to withhold and pay
(1) Legal provisions
According to Article 1 of the Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Cases of Endangering Tax Collection and Administration (Fa Shi [2024] No. 4) (hereinafter referred to as the "Judicial Interpretations of the Supreme People's Court and the Supreme People's Procuratorate"), if a withholding agent fails to pay or underpays the withheld or collected tax by means of deception, concealment or non-declaration, and the amount is relatively large, it shall be convicted and punished in accordance with the crime of tax evasion, and if the amount of tax evaded is relatively large and accounts for more than 10% of the tax payable, he shall be sentenced to fixed-term imprisonment of not more than three years or criminal detentionand a fine; where the amount is huge and accounts for more than 30% of the tax payable, a sentence of between three and seven years imprisonment and a concurrent fine is to be given.
Specifically, "deception and concealment means" include six items: (1) forgery, alteration, transfer, concealment, or unauthorized destruction of account books, accounting vouchers or other tax-related materials; (2) Concealing or decomposing income or property in the name of others in the form of signing a "yin-yang contract"; (3) Falsely listing expenditures, falsely deducting input tax, or falsely reporting special additional deductions; (4) Providing false materials to defraud tax incentives; (5) fabricating a false basis for tax calculation; (6) Other deceptive and concealment methods adopted for non-payment or underpayment of taxes. "Non-declaration" includes three items: (1) a taxpayer who has gone through the establishment and registration with the registration authority in accordance with the law and fails to declare and pay taxes due to taxable acts; (2) Taxpayers who do not need to go through the establishment registration with the registration authority in accordance with the law or fail to go through the establishment registration in accordance with the law, and have taxable acts, and are notified by the tax authorities to declare and fail to declare and pay taxes according to law; (3) Other persons who clearly know that they should declare and pay taxes in accordance with the law but do not declare and pay taxes.
In addition, with regard to the criteria for determining "relatively large amounts" and "huge amounts", Article 2 of the Supreme People's Court and Supreme People's Court Interpretations also makes specific provisions, and where the payment of taxes is evaded between 100,000 yuan and 500,000 yuan, it shall be respectively found to be "relatively large amounts" and "huge amounts" as provided for in the first paragraph of Article 201 of the Criminal Law. Where the conduct in the preceding two paragraphs is carried out multiple times, and it has not been addressed, it is to be calculated on the basis of the cumulative amount.
(2) Does the withholding agent apply the penalty to prevent the cause?
The Criminal Law clarifies the criminal deterrence of the crime of tax evasion, and embodies the principle of blending leniency and severity in the Criminal Law, that is, after the tax authorities have issued a recovery notice in accordance with the law, those who pay back the tax payable, pay the late fine, and accept the administrative penalty shall not be investigated for criminal liability. There is a view that the criminal deterrence here only applies to taxpayers, not to withholding agents, that is, once the withholding agent adopts deceptive or concealing means to fail to pay or underpay the withheld or collected taxes, and the amount is more than 100,000 yuan, a case must be filed for prosecution, and even if the tax authorities pay back the taxes, late fees, and fines after recovery, they cannot be exempted from criminal liability. However, there are also views that judging from the provisions of the Criminal Law itself, the original text of Article 201 reads: "Where there is an act in the first paragraph, after the tax authorities have issued a recovery notice in accordance with the law, the tax payable is paid in retroactive manner, and the late payment penalty is paid, and the criminal liability shall not be investigated; However, except for those who have received criminal penalties or have been given more than two administrative penalties by the tax authorities for evading the payment of taxes within five years", emphasizing "having the acts in the first paragraph", rather than limiting the application of this paragraph to taxpayers, that is, if the withholding agent has committed the acts in the first paragraph, but after paying back taxes and paying late fees, and has been subject to administrative penalties, it can be exempted from criminal liability, and the withholding agent and the taxpayer will be given the same opportunity to be punished. Article 3 of the Supreme People's Court and the Supreme People's Court provides more detailed provisions on the specific circumstances under which criminal punishment may be exempted, stating that the object of application is "taxpayer", and does not specify whether the withholding agent can apply this article, but in conjunction with the provisions of Article 201 of the Criminal Law, the withholding agent who has the conduct in paragraph 1 shall also apply the provisions on the cause of criminal punishment obstruction.
(3) Can the tax authorities impose penalties on taxpayers or withholding agents in accordance with the Criminal Law and its judicial interpretations?
It is worth mentioning that some tax authorities have recently determined that taxpayers have committed tax evasion in accordance with the relevant provisions of the judicial interpretations of the Supreme People's Court and the Supreme People's Court, which has led to a discussion on whether the tax authorities can invoke the Criminal Law and its judicial interpretations to determine tax evasion by taxpayers or withholding agents. Therefore, we suggest that the Tax Administration Law and its implementation rules should be amended as soon as possible to clarify the obligations of taxpayers and withholding agents, determine the boundary between tax evasion and non-compliance, and further promote the rule of law in taxation.