Recently, New Distribution's internal community organized an online sharing session titled "Coping Strategies for Community Group Buying in a Compliance Environment." We invited Li Xinhao, a partner at New Distribution Consulting and a practical expert in fiscal and tax matters, to share insights in the community group for community e-commerce CEOs, with simultaneous live streaming to other internal groups. In today's changing business environment, especially as corporate compliance and fiscal-tax compliance gain increasing national attention, bosses who lack fiscal and tax knowledge may face significant losses. Particularly, individual bosses in the FMCG industry have often neglected fiscal and tax aspects in their business operations. I suggest that the following content is truly worth careful study by all bosses. Since this sharing session lasted one hour and the text content exceeds 10,000 words, I have organized it into three articles, which will be pushed to you sequentially this week. This article is the third part, mainly covering: how to address three challenges of reasonable tax avoidance in community group buying. Let's first discuss a few principles. First, plan ahead. As mentioned earlier, the method of tax inspection has changed from human to system. Most people may not feel it, but there is a particularly important impact: in the past, when encountering situations, you could find someone and spend money to resolve the issue. Now it's not that easy because it's system-based early warning. The local tax bureau must provide a reasonable response to the warning content. This reasonable response cannot be explained by the tax bureau alone. If you haven't planned ahead, you'll face trouble when it happens. So, when doing tax planning now, there's a particularly important concept: conduct risk screening in advance to avoid triggering tax warning indicators. In the current situation, compliance is not an option but a necessity. Second, avoid blind compliance. What is blind compliance? For example, in 2016, a company in Hubei was preparing for an IPO and hired an accounting firm as a consultant. After arriving, they found many tax issues, requiring back taxes of over 10 million yuan. The boss calculated and felt it was worth paying the 10 million, so he waved his hand and paid. But within a few days, before the IPO had any progress, the tax bureau came knocking. Why? If you can pay over 10 million in back taxes so easily, there must have been a huge pitfall before—tax evasion and fraud. Who knows if there are other issues, plus late fees. So, forget about the IPO; first, sort out the tax issues. If not handled well, there could be imprisonment. So, although the matter was eventually settled, the delay left fiscal and tax compliance issues, and the IPO opportunity was missed. Therefore, compliance must be done, but also avoid such behavior that ignores consequences for the sake of goals. Compliance is a long-term task, not just the finance department's responsibility; it involves equity, business operations, contract handling, etc. No company can quickly complete compliance transformation from a past non-compliant foundation in a short time. Third, compliance standards vary. If you don't plan to go public and just want to make money, the compliance standards can be relatively relaxed, mainly to avoid being investigated by tax and banks, which is generally sufficient. If you plan to take the capital route and go public, you need to lay a compliance foundation from the start to avoid hard flaws. What counts as hard flaws? Tax penalties are one, capital withdrawal is another, and chaotic equity structure is also one. The requirements for financial, tax, and capital handling will inevitably be higher. So, when discussing compliance, first think clearly whether to go left or right. Of course, this is not absolute. If compliance flaws are minor, compliance transformation can still be done after being acquired by a giant, but the cost is higher, and with fiscal and tax compliance flaws, you give up some negotiation leverage. These are the three basic principles for facing compliance. Next, let's discuss some common practical challenges that may affect your interests. I'll go through them one by one. ▲ Problem Response: Private Account Receipts The first challenge to address is private account receipts. This is actually very common; all industries directly facing end consumers encounter it. Customers don't ask for invoices, and there's no need for public account receipts, so bosses are happy to pay less tax. But the situation has changed. First, bank supervision has tightened. Just after the Spring Festival this year, I had three clients in Beijing, Shanghai, and Dongguan who used private accounts to receive money, and all encountered issues. Basically, banks asked about large and frequent fund inflows and outflows—where they came from and what they were for. Those who handled it well, with minor issues, got through temporarily; those who didn't had limits imposed or accounts frozen. Second, tax risks have increased. In 2017, a boss in Wuxi was reported, and the tax bureau directly investigated his five bank cards. They selected two and jointly with the bank checked them. The account had over 10 million yuan. He couldn't explain it, so it was directly treated as tax evasion. He had to pay back taxes, losing a quarter of it. This was even lenient—no fines or late fees, and several cards were left unchecked. So, private account receipts have a direct impact on bosses: if caught, back taxes are unavoidable, and with fines and late fees, the amount could double. Last year, the celebrity Fan's huge amount wasn't all back taxes; nearly two-thirds were fines. Furthermore, if income goes into private accounts, it's not on the books. In other words, the company's income cannot be reflected. From a capital perspective, this income is invisible, affecting valuation and creating significant compliance flaws. Even if you don't need to scale up in the next few years and income doesn't need to be shown, if you enter the reporting period, income is never too much. If income fluctuates too much, it can easily trigger the blind compliance issue mentioned earlier. To summarize, private account receipts are common, but risks are increasing. This issue directly affects bosses' interests, so it's the first thing to address. So, if money goes into the company account, how do bosses use it for themselves? Several situations: The most normal channel is dividends. After paying corporate income tax, profits are subject to 20% individual income tax, totaling about 40% in taxes. This is the most compliant but also the most costly. If you want to save on taxes, there are options: you can set up the company in a place with government incentives, or use a partnership as a shareholder, also in a place with government incentives. These two layers of incentives can save 20%-30% in taxes. This tax-saving method has no hidden risks but is relatively less effective. The second channel is borrowing from the company. Take the money, use it, and return it later. Note: shareholder loans should not cross years. If discovered, it's deemed as dividends, and 20% individual income tax is levied on the loan amount—no negotiation. So, if a loan needs to cross years, return it before year-end and borrow again in January. This method has no cost, but the money is still the company's; it's just a temporary loan. Besides these two, are there other ways? Actually, yes. If you're not going public, you can still get money with relatively high compliance and relatively low cost through some methods. This topic is not suitable for public discussion, so I won't expand on it today. If any boss has needs, let's communicate separately. ▲ Problem Response: Lack of Input Invoices The second challenge is lack of input invoices. Many of our products are purchased without input invoices. In previous years, it was often solved by buying invoices, or simply not issuing output invoices, so the lack of input didn't matter. Now, on one hand, the Golden Tax Phase III system can directly compare unreasonable input-output discrepancies, blocking many channels for buying invoices. It can be said that the biggest tax risk now is buying invoices, especially for physical goods trade. On the other hand, as mentioned, private account receipts need attention, and we should gradually reduce them. At this point, lack of input becomes a critical issue: with a 13% difference between input and output, many companies' profits may not even cover the tax. How to address this? Actually, there's no particularly good solution; it will definitely increase costs. But the method is simple: first, try to get invoices as much as possible. Even if it increases costs, as long as the company's profit can cover the extra input invoice cost, it's recommended to get the invoice. If purchasing directly from farmers, you can issue agricultural product purchase invoices locally, which is fully compliant. However, note that it must be directly from farmers, not through cooperatives or supply and marketing cooperatives. ▲ Problem Response: Team Leader Commissions The third challenge is team leader commissions. Actually, the previous analysis has already covered this, but now I'll be more specific. First, an important premise: if most income is in private accounts and the company's books show no money, commissions to team leaders are paid from private accounts, so there's no tax issue. Therefore, the solutions mentioned earlier assume income goes into the public account. If they are employees, no need to think much—it must be treated as wages; if part-time, it must be treated as labor remuneration; if self-employed, then issue invoices for specific transactions. Based on my understanding, the reason team leader commissions are a problem is that classification is easy, but the tax is too high. Whether wages or labor remuneration, taxes are relatively high. How to solve this? Let's discuss different situations. If they are employees, first, the person must receive wages. To save taxes, you need to split all income of this person: part as wages, paid normally, and part transferred outside the company through transactions. The transaction counterpart can be a low-tax entity or an entity in a special tax policy location. In other words, transfer the individual income tax pressure of this part of funds to another entity, creating more flexible operation space and possibilities. What is this external entity? There are many options: it could be a friend's company, a sole proprietorship, or an individual business. But the core is to design the transaction structure well—that is, the outflow of funds must be reasonable, match the company's business, and be explainable to tax authorities. Generally, this needs to be designed based on the company's business. Many companies have started doing this, but often they only make a contract and issue an invoice, achieving so-called "three flows consistency." Here I need to explain: three flows consistency is just a rough judgment method. Inconsistency may indicate problems, but consistency doesn't mean business compliance. To explain clearly to tax authorities, you need many proofs of business reasonableness and authenticity. If any boss has experienced tax self-inspection or risk explanation, this is easy to understand. If the team leader is part-time, there are two situations: one is low monthly income, e.g., below 5,000 yuan. In this case, they can sign a part-time labor contract with the company. Below 5,000 yuan is exempt from individual income tax, but note: this method has a risk. According to the new individual income tax law, part-time wages and wages are combined as comprehensive income, and year-end settlement is required. So, the tax isn't avoided, just deferred. The State Taxation Administration's individual income tax system went online in March. Based on the progress of system integration in various provinces, it's highly likely that nationwide individual income tax information collection will be completed this year. For those with higher income, using labor remuneration or wages is not cost-effective. The best way is to set up an individual business in a place with approved taxation. Bosses in this field may know that last year Beijing issued a document to cancel approved taxation for individual businesses, which had a significant impact nationwide. Later, an explanation was issued saying that those meeting the approval conditions can continue, but what constitutes "meeting conditions" wasn't specified—the interpretation is entirely up to the tax bureau. Elsewhere is uncertain, but at least in Beijing, those with actual business premises almost don't need to consider approved taxation. Plus, the impact of the film and television industry last year means many sole proprietorships that could have approved taxation now find it difficult. Of course, such places still exist, but requirements are higher and locations fewer, mostly concentrated in remote areas. If the team leader is already an individual business or company, whether providing services to the company or selling goods directly as a distributor, it can better solve the company's fund outflow problem. This situation is easier to handle—just determine the transaction relationship with the platform company in a reasonable way. If the company plans to go public in the next few years, it's recommended to adjust all the above situations to the third type, i.e., team leaders as independent business entities. In recent years, Haier has implemented "RenDanHeYi," and many companies have adopted Amoeba management. In tax terms, these are independent business entities that motivate employees to create performance through division of operational responsibilities, with more pay for more work. To summarize, the handling of team leader commissions mainly depends on the relationship between the team leader and the platform company. There are many methods, but the key is to look at the platform's business model and how the business operates. Today, I've spent some time sharing with you about fiscal and tax compliance. This content is mostly summarized from my years of experience serving enterprises. Some content may be familiar to you, and some may not be fully explained. Additionally, my understanding of community group buying is still limited, so there may be inappropriate interpretations. I welcome industry experts to point them out. If any boss is interested in today's sharing, feel free to communicate more. Thank you, Xiaodong, and thank you all for taking the time to listen to my sharing. Thank you! Extended Reading: Tips will be paid 400-2000 yuan once adopted. China FMCG + Internet Professional New Media Dedicated to FMCG manufacturer and distributor transformation and channel digital solutions