Li Gong is a researcher at Y Research Institute and an expert in the pharmaceutical field. During his work, he has obtained multiple patented technologies for the unit and has a wide range of market applications. Company A is a pharmaceutical company that is very interested in Mr. Li and his research achievements. We hope to collaborate with Mr. Li to develop pharmaceutical products or transform corresponding technological achievements.

After discussion, both parties have decided to jointly establish Company B as a cooperation platform. In order to enjoy relevant tax benefits, the following arrangements have been made for Li Gong's contribution:

Li Gong invested in a pharmaceutical patented technology (evaluated to be valued at RMB 3 million, hereinafter referred to as the "pharmaceutical patent"), and the technology invested in Company B, accounting for 30% of the company's shares. Li Gong applied for preferential policies for deferred tax on the taxable income tax of B Company's shares obtained through technological investment.

The pharmaceutical patent that Li Gong used to invest in is the result of his tenure. The patent was originally registered under the name of Y Research Institute. In order to encourage the transformation of technological achievements by scientific and technological personnel, Y Research Institute has decided to award pharmaceutical patents to Mr. Li for free. After renaming, Li Gong used it as a capital contribution for Company B.

Company B was successfully registered and established at the end of 2020. After being reviewed by the local tax authorities where Company B is located, Li Gong's contribution complies with the preferential policy of enjoying deferred tax payment, achieving the original tax planning.

At the beginning of 2021, the tax authority of the place where Y Scientific Research Institute is located issued a notice requiring Li Gong to pay Personal income tax on his free patent obtained from Y Scientific Research Institute. After receiving the notice, all parties knew that Li Gong needed to pay a huge amount of Personal income tax on his free patent obtained from Y Research Institute. This result surprised all parties. So all parties began to consult and seek solutions.

In this case, Mr. Li invested in patented technology and enjoyed deferred tax benefits, which is in line with current policies. According to Article 3 of the Notice of the Ministry of Finance and the State Taxation Administration on Improving the Income Tax Policies Related to Equity Incentive and Technology Investment (CS [2016] No. 101), since September 1, 2016, if an enterprise or individual invests in a domestic resident enterprise with technological achievements, and the consideration paid by the invested enterprise is all shares (rights), tax may not be paid temporarily in the current period of investment, and it is allowed to be deferred until the transfer of equity, Calculate and pay income tax based on the difference between the income from equity transfer minus the original value of technical achievements and reasonable taxes and fees. That is to say, Li Gong does not need to pay Personal income tax when he acquires the equity of Company B through his patented technology, and will pay income tax when he transfers it in the future. When transferring in the future, if the difference after deducting the original value of the technical achievements and reasonable taxes is zero or negative, Personal income tax is not required to be paid. It can be seen that this policy not only delays the deadline for tax payment, but also eliminates the need for tax payment if the startup fails and there is no income from transferring equity. This is the most thoughtful preferential policy for entrepreneurs who invest in technology to establish companies. For this preferential policy, all parties involved in this case are concerned and actively creating conditions to enjoy it.

Why does Li Gong need to pay Personal income tax when he gets patent award from his company? Does the pharmaceutical patented technology obtained by Li Gong from Y Scientific Research Institute belong to the income of paying Personal income tax in the tax law? If so, what specific type of income does it belong to? Let's analyze: in this case, Li Gong is an employee of Y Scientific Research Institute, and the income from wages and salaries obtained in this unit belongs to the tax income specified by Personal income tax, which is no doubt. Although the pharmaceutical patented technology in this case was invented by Mr. Li, it belongs to the service invention and belongs to the unit. In fact, it was initially registered under the unit's name and belongs to the unit's intellectual property. The unit transfers the patent to Li Gong for free, which is essentially a bonus paid by the unit, but the bonus is paid in a non cash form. It can be seen that Li Gong's acquisition of pharmaceutical patented technology also belongs to the income from wages and salaries in tax law. Therefore, there is a legal basis for the tax authorities to require Li Gong to pay Personal income tax. According to the income from wages and salaries, personal income tax shall be paid at a rate of 3% -45%, with a seven level excess cumulative tax rate. For the portion of comprehensive income exceeding 960000 yuan, the tax rate can reach 45%. Therefore, based on the assessed value of the patent of 3 million yuan, the tax amount can be described as a huge amount.

According to the parties involved, in order to enjoy the relevant tax preferential policies, there was a "senior mage" (retired tax service personnel from relevant authorities, highly trusted by customers) who provided full guidance, but unfortunately, the relevant tax obligations were still omitted. In this case, the fact that the tax authority of the place where Y Research Institute is located requires Li Gong to pay Personal income tax is based on the relevant filing materials provided by B Company when it applied for the preferential tax policy of deferred tax payment. There are mainly materials for Li Gong to obtain patent technology rewards free of charge from Y Research Institute and materials for patent technology evaluation with a price of 3 million yuan. The tax authorities have a very sufficient and clear tax basis and tax base.

The author received consultation from the parties involved in this case in early 2021. After listening to the introduction of the party, I deeply regret it. Regarding the transformation of technological achievements by scientific and technological personnel, the country has introduced many tax preferential policies. To achieve the goal of legal tax savings, the parties involved have various feasible plans and paths. Unfortunately, the parties unconsciously chose the worst path.

Lawyer Plan

What are the paths that the parties involved can take to achieve legal tax savings?

In this case, what surprised all parties involved was the huge amount of Personal income tax that Li Gong had to pay in the process of obtaining patented technology. The following paths can be selected for this link:

Path 1: Li Gong obtained pharmaceutical patents from Y Research Institute through trading.

Obtaining a patent for free requires paying a huge amount of personal income tax. Will paying taxes on purchasing a patent be more favorable? Before answering this question, let's first review the tax policies related to technology transfer:

1、Corporate income tax

According to the Regulations for the Implementation of the Enterprise Income Tax Law of the China (Order No. 512 of the State Council of the State Council of the People's Republic of China), the part of eligible technology transfer income of resident enterprises that does not exceed 5 million yuan in a tax year from January 1, 2008 shall be exempted from enterprise income tax; For the portion exceeding 5 million yuan, corporate income tax will be reduced by half.

2、Value added tax

According to the Notice of the Ministry of Finance and the State Taxation Administration on Fully Launching the Pilot Program of Levying Value Added Tax in Lieu of Business Tax (CS [2016] No. 36), taxpayers are exempt from VAT when they provide technology transfer, technology development and related technical advice and services.

3、Stamp duty

According to the tax item and tax rate of Stamp Tax of the China, the patent right transfer certificate shall be affixed with three ten thousandths of the amount.

In this case, if Li Gong purchases a pharmaceutical patent from Y Research Institute, both parties mainly involve value-added tax and corporate income tax. According to the above regulations, value-added tax is exempt and does not need to be considered, and corporate income tax within 5 million is also exempt. Reasonable planning by both parties can fully achieve the goal of legal tax savings.

Path 2: Y Research Institute invests in Company B with pharmaceutical patents, obtains equity in Company B, and then rewards Mr. Li.

Similarly, let's first review the relevant tax related policies for technological achievement rewards.

1、According to Article 1 of the Notice of the Ministry of Finance, the State Administration of Taxation, the Ministry of Science and Technology of the People's Republic of China on the Personal income Tax Policy for Scientific and Technological Personnel Obtaining Cash Rewards for the Transformation of Scientific and Technological Achievements by Their Positions (CS [2018] No. 58), non-profit research and development institutions and colleges and universities (hereinafter referred to as non-profit research institutions and colleges and universities) approved to be established in accordance with the provisions of the Law of the China on Promoting the Transformation of Scientific and Technological Achievements, The cash rewards given to scientific and technological personnel from the income from the transformation of scientific and technological achievements by their posts can be reduced by 50% and included in the "income from wages and salaries" of scientific and technological personnel in the current month, and Personal income tax shall be paid according to law.

2、Article 1 of the Notice of the State Taxation Administration on Cancelling the Right to Review the Personal income Tax Temporarily Not Levying for Promoting the Transformation of Scientific and Technological Achievements (Guo Shui Han [2007] No. 833) stipulates that scientific research institutions and colleges and universities will give individual rewards in the form of shares or capital contribution ratio and other equity forms for transforming scientific and technological achievements, and Personal income tax will not be levied temporarily.

3、Article 3 of the Notice of the State Taxation Administration on Personal income Tax Issues Related to Promoting the Transformation of Scientific and Technological Achievements (Guo Shui Fa [1999] No. 125) stipulates that the winners transfer their equity and the proportion of their capital contribution, and Personal income tax shall be levied on their income according to the taxable items of "income from property transfer", and the original value of the property is zero.

Through the analysis of the above policies, after the scientific and technological achievements obtained by scientific researchers are converted into equity incentives, they will not be subject to Personal income tax when they obtain equity. In case of subsequent transfer, Personal income tax shall be levied according to the taxable item of "income from property transfer". In addition to equity incentives, 50% of the cash incentives obtained by scientific and technological personnel from the transformation of scientific and technological achievements carried out by non-profit research and development institutions and colleges and universities shall be included in the "income from wages and salaries" of scientific and technological personnel in the current month, and Personal income tax shall be paid.

Specifically, in this case, Y Research Institute invested in Company B with pharmaceutical patents, obtained equity in Company B, and then rewarded Li Gong. If the conditions are met, they can enjoy the above preferential policies.