The way for streamers to "get rich": Having tens of millions of fans, evading tens of millions in taxes.
[4] Compiled from: Red Star News
Case review
On November 22, according to the official website of the tax authorities in Hangzhou, Zhejiang Province, online streamers Zhu Chenhui (Weibo ID: Cherie Xue Li) and Lin Shanshan (Weibo ID: Lin Shanshan_Sunny) will be required to pay back taxes, late fees, and fines totaling 65.5531 million yuan and 27.6725 million yuan respectively for tax evasion.
According to publicly available information from the tax authorities, during 2019 and 2020, Zhu Chenhui and Lin Shanshan primarily set up sole proprietorships in places like Shanghai, Guangxi, and Jiangxi, fabricating business transactions to convert their personal wages, salaries, and labor remuneration into business income of these sole proprietorships, thereby evading personal income tax. Their methods of tax evasion were identical: both registered a large number of sole proprietorships and then fabricated business transactions to convert personal wages, salaries, and labor remuneration into business income of the sole proprietorships.
On the evening of the 22nd, streamers Xue Li and Lin Shanshan almost simultaneously posted apology letters on their respective Weibo accounts. Both apology letters mentioned fully accepting the administrative penalty decisions made by the tax authorities in accordance with the law, and promptly paying the owed taxes, fines, and late fees; suspending live streaming for regulation and rectification.
Article 63 of the Tax Collection and Administration Law of the People's Republic of China
Tax evasion refers to a taxpayer's actions such as forging, altering, concealing, or unauthorized destruction of account books or vouchers, overstating expenses or understating or omitting income in account books, or refusing to declare or making false tax declarations after being notified by tax authorities, resulting in non-payment or underpayment of taxes payable. For taxpayers who commit tax evasion, the tax authorities shall recover the unpaid or underpaid taxes and late payment surcharges, and impose a fine of not less than 50% but not more than five times the amount of unpaid or underpaid taxes; if the act constitutes a crime, criminal liability shall be pursued in accordance with the law.
Where a withholding agent adopts the means specified in the preceding paragraph to fail to pay or underpay the taxes that have been withheld or collected, the tax authorities shall recover the unpaid or underpaid taxes and late payment surcharges, and impose a fine of not less than 50% but not more than five times the amount of unpaid or underpaid taxes; if the act constitutes a crime, criminal liability shall be pursued in accordance with the law.
[1] The author's perspective
Both hosts involved in this incident are relatively well-known internet celebrities. Zhu Chenhui has about 15 million followers on Weibo, and Lin Shanshan has about 9.5 million, showing they have a certain level of public support and influence. In recent years, the amounts of tax evasion repeatedly exposed among internet celebrities and stars have reshaped many people's understanding of their income, with evaded taxes often reaching tens of millions, giving a glimpse into their actual earnings.
In fact, evading taxes by registering a sole proprietorship has long been no secret, often euphemistically called "reasonable tax avoidance." In reality, because many sole proprietorships have incomplete accounts, they are not subject to audit-based taxation but rather to deemed taxation (where a fixed income ratio is set as the taxable income). Some regions, to boost local economic development, offer tax incentives for investment attraction. Registering a sole proprietorship in a designated local park can result in a very low deemed income ratio, with an actual tax rate as low as 2% or even lower, far below the 45% individual income tax rate for "wage and salary income" and the 25% corporate income tax rate. For this reason, sole proprietorships are considered the "best solution" for "reasonable tax avoidance."
However, these sole proprietorships often have no actual operations; their primary purpose is to funnel personal income or corporate profits through fabricated business activities to achieve tax evasion. Thus, while they appear to have a legal facade, they are undoubtedly illegal.
This time, tax authorities used technical methods such as big data analysis to lawfully investigate and penalize tax evasion, not only upholding tax collection and income distribution order but also serving as a warning to internet celebrities and stars who still harbor hopes of evading taxes.
