Caixin
Nov 23, 2021 04:40 AM
ECONOMY

China Fines Two Livestreamers $14.6 Million for Tax Evasion

Zhu Chenhui, known as “Xueli Cherie,” at a livestreaming event Aug. 28, 2020.
Zhu Chenhui, known as “Xueli Cherie,” at a livestreaming event Aug. 28, 2020.

China slapped a combined 93.2 million yuan ($14.6 million) of fines on two influential livestreamers for income tax evasion, the first such punishment in the booming but underregulated sector.

The tax authority in the eastern Chinese city of Hangzhou found that Zhu Chenhui, using the screen name “Xueli Cherie,” and Lin Shanshan, known as “Lin Shanshan Sunny,” illegally reported personal income as business income, evading more than $6.8 million of personal taxes, the tax authority said in a statement.

The two livestreamers set up 10 sole proprietorship companies in different places and recorded their personal salaries as operating income of the enterprises, a tax evasion method often used by high-net-worth individuals, a tax law firm partner told Caixin. Previously, leading Chinese actresses Fan Bingbing and Zheng Shuang were both found guilty of evading taxes totaling hundreds of millions of yuan in this way.

Under China’s tax law, individual wages, remuneration for labor services and authors’ remuneration and royalties are taxed at rates of up to 45%, while income earned by individuals from privately owned businesses, sole proprietorships or partnerships is generally taxed at progressive rates from 5% to 35%. In addition, China doesn’t levy business income tax on sole proprietorships. So setting up a sole proprietorship in the form of a studio is a common move by livestreamers and entertainers seeking to cut their taxes.

Determining the nature of personal income is a major problem in the taxation of high-net-worth individuals, and there are many disputes over implementation, several tax experts told Caixin.

After years of development, the film and television industry issued accounting and tax treatment standards for studios and entertainers. In contrast, the emerging livestreaming industry lacks standards, making it difficult for livestreamers to pay taxes according to law and for tax authorities to inspect compliance, the tax law firm partner said.

Livestreaming e-commerce took off in China in 2019, creating celebrity livestreamers who have grown so adept as pitchmen that they can sometimes sell out the entire inventory of a product during a single sales session. Brands can pay tens of thousands of yuan to livestreamers for one pitch, handing over a cut of product sales as commission.

In April, seven central government agencies including the nation’s top cyberspace watchdog and market regulator rolled out new rules targeting the livestreaming e-commerce sector.

The Hangzhou tax authority said big data analysis detected the tax evasion by Zhu and Lin. The fine, including back taxes, was lenient in consideration of their cooperation with the inspection and voluntary payback of partial tax before the cases were closed, the tax authority said.

Through big data analysis, the tax authority said it also found and is investigating suspected tax evasion by other livestreamers.

In recent months, Beijing has been increasing scrutiny of tax evasion in the entertainment and livestreaming industries. The State Taxation Administration issued a notice in September requiring celebrities and livestreamers to set up tax accounts for their studios or businesses in accordance with the law and have their tax declarations and payments audited and verified by tax authorities.

The livestreaming industry has conducted self-inspection of the practice of reporting personal income as business income, and most livestreamers have completed rectification, an industry participant told Caixin.

During the Double 11, a shopping festival around Nov. 11, when online retailers offer huge promotions, tax authorities across the country conducted inspections targeting platforms and livestreamers, Caixin learned from several sources.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (hello@caixin.com)

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