Analysis on Taxation in Copyright Contribution in China

By Luo Yanjie

China corporate lawyer, China company establishment, company establishment tax administration, company establishment tax avoidance, non-monetary investment taxation issues, non-monetary investment tax avoidance, copyright contribution tax issue, copyright contribution tax avoidance, corporate law, company establishment, company establishment legal issues, company capital adequacy duty, value-added assessment, original value assessment, company income tax, business tax, personal tax, turnover tax, asset evaluation, non-monetary contribution.

We have once posted an essay discussing the legal problems with the company’s contribution to copyright due to the features of the right itself. The aim of this essay is to discuss an alternate stance of copyright contribution from the aspect of taxation.

Tax is the major source of government financial income, and whatever the investment is, taxes are inevitable and fees are chargeable by the government. The main taxes involved in copyright contribution are business tax and income taxes, which could be either the personal income tax or the company income tax as determined by the transaction objects. Therefore, this essay would mainly focus on these taxes levied in the copyright contribution.

I. No business tax in the copyright contribution

By the Interim Regulations on the Business Tax of PRC (the “Regulations”), “All units and individuals engaged in the provision of services as prescribed in these Regulations, the transfer of intangible assets or the sale of immovable properties within the territory of the People’s Republic of China shall be taxpayers of Business Tax, and shall pay Business Tax in accordance with these Regulations.” For copyright, as the intangible asset will be transferred to the company when making the investment, such contribution will naturally be covered by the regulation. However unlike other transfers, the correct transfer of copyright contribution is not a degree of “operation” within the right, and the operation will occur in the running of the company; whilst on the other hand a section of the rights are still maintained by the shareholders (contributors or investors). Therefore the collection of business tax in such a progress in the company contribution is less reasonable.

For this reason the Ministry of Finance and the State Administration of Taxation joint issued a document (caishui (2002) No. 191), which outlines that –

“No business tax shall be collected when the contribution is made with intangible assets or immovable property, and the benefits and risks hereby produced will be distributed or taken with the investee.”

Accordingly, although the “transfer of intangible assets” occurs in the process of the copyright contribution, no business tax is taken by the units or individuals involved.

II. The income tax may be collected in copyright contribution

The income tax refers to the taxes whereby the income acts as the object of taxation; which means the tax is payable when there is an income from the given company or individual. When the companies invest in the copyright, the income could only exist when the evaluation of the copyright is to a higher value than the given book value. The value-added term is defined as the income of the company by law which will be upon an assessment basis of the company income tax. Meanwhile, if the value post the assessment is to a lesser value in comparison to the book value, then the income will not be taxable in the investment Moreover; such devaluation could offset the income tax payable as the losses.

In the case of income tax of the copyright contribution, the previous major legal ground of the issue is the document Guoshuihan (2005) No. 19 issued by the State Administration of Tax in 2005. In accordance with the document, the personal income tax collection will be suspended when the non-monetary assets are invested in the company, after there is an added-value assessment in the investment.

The given document above (Guoshuihan 2005 No. 19) has been currently overruled, and has been replaced by the document Guoshuihan (2008) No.115. This document states that-

“when the individual gets the share option through the non-monetary asset investment which is assessed a value increase, the value-added part shall be the taxable personal income as the gains from the asset transfer, and such taxes shall be withheld and remitted when getting the shares.”

The result of this document is that for investments with copyright contribution, the personal income tax will be collected in the same way as company income tax is collected. Astonishingly, administration quickly revoked the document and admitted no such publication. Following our investigation, the local taxation administrations have not enforced this document, but are still following the older one.

Lawyer Contacts

You Yunting

86-21-52134918

youyunting@debund.com, yytbest@gmail.com

For further information, please contact the lawyer as listed above or through the methods in our CONTACTS.

Bridge IP Law Commentary’s posts, including the comments and opinions contained herein, shall not be construed as the legal advice on any issues related. The contents are for general information purposes only. Anyone willing to quote or refer the posts to any other publications or for any other purposes, no matter there’s benefits gained or not, shall first get the written consent from Bridge IP Law Commentary and used under the discretion of us. As to the application of the reprint permission for any of our posts, please email us to the above addresses. The publication of this post or transmission of it through mail, internet or other methods does not constitute an attorney-client relationship. The views set forth here are of due diligence, neutrality and impartiality, representing our own opinions only and are our original works.

Short Link: