(a) During a tax audit in October 2017, Horse Ltd was challenged by the district tax bureau on the following issues:
– Under-withholding of individual income tax (IIT) on employees’ salaries of RMB100,000 for the year 2015; and
– Underpaying enterprise income tax (EIT) of RMB150,000 for the year 2016 through using fraudulent invoices.
The tax notice required Horse Ltd to settle the above amounts by 31 October 2017.
Required:
(i) Calculate the penalty range on the under-withholding of individual income tax (IIT).
(ii) Calculate the penalty range on underpayment of enterprise income tax (EIT).
(iii) Calculate the late payment surcharge on EIT if Horse Ltd settled the EIT on 31 October 2017.
(b) Horse Ltd paid the taxes, penalty and late payment surcharge on 31 October 2017. Due to other non-compliance issues, the company was downgraded to Grade D by the district state tax bureau in July 2018 and ceased to receive export value added tax (VAT) refunds from July 2018. In August 2018, Horse Ltd decided to appeal against the tax audit results, referred to in part (a) above, and the downgrading.
Required:
(i) State, with reasons, whether in August 2018, Horse Ltd can appeal against the tax audit results referred to in part (a) above.
(ii) State, with reasons, whether Horse Ltd can appeal against its downgrading by the tax bureau in August 2018 and explain which bureau the appeal should be submitted to.
(c) State any THREE circumstances in which the tax authorities can assess the enterprise income tax (EIT) of a resident taxpayer on the deemed basis.
(c) The circumstances in which the tax authorities can assess the enterprise income tax (EIT) of a resident taxpayer on the deemed basis:
– The taxpayer does not need to keep accounting records under the law.
– The taxpayer should keep accounting records but has not.
– The taxpayer destroys the accounting records without approval.
– The taxpayer refuses to provide tax information.
– The taxpayer has kept accounting books but the information on costs and vouchers on income and expenses are incomplete and cannot be audited.
– The taxpayer is liable to tax but has not filed their tax return on time and, after being requested to by the tax authorities, the taxpayer still has not filed their tax return on time.
– The tax base included in the tax return filed is obviously low and without legitimate reason.
