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In their day-to-day operations, many companies often fail to properly handle tax matters—such as the sale of scrap materials, asset investments, supplementary medical insurance, centralized borrowing and repayment, and subleasing—due to an inadequate understanding of tax policies. This can lead to back taxes, fines, and even the risk of tax audits. Under the “Golden Tax Phase IV” initiative, tax oversight is becoming increasingly stringent, and companies must shift from a “reactive” approach to “proactive risk management.” This article outlines 16 common tax risk areas and corresponding solutions to help companies ensure compliance, mitigate risks, and operate steadily.

I. 16 Common Tax Risk Areas (Classified by Scenario)

Revenue Recognition Risks

Tax Risks Associated with the Disposal of Production Waste and Scrap Materials by Enterprises: The company did not include the proceeds from the disposal of waste materials in its operating revenue, resulting in an underestimation of the output VAT.

Policy basis: Article 1 of the *Interim Regulations on Value-Added Tax* and Article 3 of its Implementing Rules; Item 1 of Article 2 of the *Notice of the Ministry of Finance and the State Administration of Taxation on Policies Regarding the Application of Lower VAT Rates and Simplified Collection Methods for Certain Goods*.

Tax Risks Associated with Mixed Sales Operations That Are Not Accounted for Separately: When a company sells its own products and provides related services, failure to account for revenue from the sale of goods and revenue from services separately may result in the application of an incorrect tax rate, potentially exposing the company to the risk of having to pay back taxes.

Policy basis: Article 3 of the *Interim Regulations on Value-Added Tax*; Article 15 of Annex 1 to the *Notice of the Ministry of Finance and the State Administration of Taxation on the Full Implementation of the Pilot Program for Replacing Business Tax with Value-Added Tax*.

Tax Risks Associated with Undeclared Investments in Non-Cash Assets: When a company makes external investments using tangible or intangible assets, if it fails to recognize revenue and accrue VAT as required by treating such investments as sales, there is a risk of tax evasion.

Policy basis: Article 4 of the *Implementing Rules of the Provisional Regulations on Value-Added Tax*; Article 14 of Annex 1 to the *Notice of the Ministry of Finance and the State Taxation Administration on the Full Implementation of the Pilot Program to Replace Business Tax with Value-Added Tax*.

Tax Evasion Risks Associated with Government Land Allocations as Capital Contributions: When a company uses land allocated to it free of charge by the government as an investment contribution, it failed to report and pay value-added tax as required under the regulations, treating the transaction as a deemed sale.

Policy basis: Article 14 of Annex 1 to the “Notice of the Ministry of Finance and the State Administration of Taxation on the Full Implementation of the Pilot Program to Replace Business Tax with Value-Added Tax.”

Non-compliance with Rent Revenue Recognition: The company has not recognized rental revenue in accordance with the accrual basis of accounting, posing a risk of delayed or omitted revenue reporting.

Policy basis: Article 19 of the *Interim Regulations on Value-Added Tax*; Article 38 of the *Rules for the Implementation of the Interim Regulations on Value-Added Tax*.

Failure to Report Rent Paid in Kind: When a company accepts goods or services in lieu of rent, it fails to recognize revenue at fair value.

Policy basis: Point 5 of Item 6 of Article 1 of the “Annotations on the Sale of Services, Intangible Assets, and Real Estate,” an annex to Annex 1 of the “Notice of the Ministry of Finance and the State Administration of Taxation on the Full Implementation of the Pilot Program for Replacing Business Tax with Value-Added Tax.”

Long-Outstanding Accounts Receivable and Payable: Accounts receivable and other accounts receivable and payable have been outstanding for a long time, raising suspicions of concealed revenue.

Policy basis: Article 19 of the *Interim Regulations on Value-Added Tax*; Article 38 of the *Rules for the Implementation of the Interim Regulations on Value-Added Tax*.

Omission of Fund Occupancy Fees: Revenue from interest on funds advanced between affiliated companies was not recognized in accordance with regulations.

Policy basis: Article 37 of Annex 1 to the “Notice of the Ministry of Finance and the State Administration of Taxation on the Full Implementation of the Pilot Program to Replace Business Tax with Value-Added Tax.”

Unreported Interest on Loans: Interest income from intercompany lending transactions was not recognized in accordance with regulations.

Policy basis: Article 14 of Annex 1 to the “Notice of the Ministry of Finance and the State Administration of Taxation on the Full Implementation of the Pilot Program to Replace Business Tax with Value-Added Tax.”

Friendly Reminder: Sales of scrap materials, rental income, and fees for the use of funds are key areas of focus for tax audits. We recommend maintaining a ledger for scrap material receipts and shipments, recognizing rental income on an accrual basis in installments, and ensuring that intercompany loans are supported by written agreements with interest income recognized at market rates. Want to access compliance templates for various revenue recognition practices? Scan the QR code to add WeChat ID jxhcyb, and we’ll send you detailed materials!

Risks Associated with Specialized Business Operations

Improper Tax Treatment of Supplemental Health Insurance: The company failed to withhold and remit individual income tax as required on the supplemental health insurance it purchased for its employees, and did not make tax adjustments for the excess amount.

Policy basis: “Regulations for the Implementation of the Corporate Income Tax Law”; “Regulations for the Implementation of the Individual Income Tax Law”; “Notice of the Ministry of Finance and the State Administration of Taxation on Issues Concerning Corporate Income Tax Policies for Supplementary Pension Insurance Premiums and Supplementary Medical Insurance Premiums.”

Abuse of the Centralized Borrowing and Repayment Policy: Although the company’s fund transfers do not meet the criteria for centralized borrowing and repayment (e.g., interest rates exceed the limit, or funds are used for multiple purposes), it still improperly enjoys tax exemptions.

Policy basis: “Notice of the Ministry of Finance and the State Administration of Taxation on the Full Implementation of the Pilot Program to Replace Business Tax with Value-Added Tax” (Cai Shui [2016] No. 36).

Underreporting of Revenue from the Resale of Hydroelectric Power: When the company resold the electricity it had purchased to other entities, it failed to file and pay value-added tax as required.

Policy basis: Articles 1 and 2 of the *Interim Regulations on Value-Added Tax*.

Tax Evasion in Subleasing Operations: When a company subleases real estate or equipment, it fails to report and pay value-added tax.

Policy basis: Generally, this involves transactions subject to value-added tax (VAT), and a determination must be made based on the specific business circumstances.

Improper Tax Treatment of Trial-Sale Products: During the trial production phase, output tax was not accrued on product sales in accordance with regulations.

Policy basis: Article 1 of the *Interim Regulations on Value-Added Tax*.

Abnormal Report on the Sale of Restricted Shares: When major shareholders of listed companies sell restricted shares, there are issues such as untimely reporting or inaccurate cost accounting.

Policy basis: Article 45, Item 3 of Annex 1 to the “Notice of the Ministry of Finance and the State Administration of Taxation on the Full Implementation of the Pilot Program for Replacing Business Tax with Value-Added Tax.”

Ineligible for the Centralized Borrowing and Return Program: The company’s cash management practices do not comply with the requirements of the “centralized borrowing and repayment” policy, yet it continues to receive tax incentives in violation of the regulations.

Policy basis: “Notice of the Ministry of Finance and the State Administration of Taxation on the Full Implementation of the Pilot Program to Replace Business Tax with Value-Added Tax” (Cai Shui [2016] No. 36).

II. Solutions for Common Tax Risks (with Case Studies)

Case Study 1: Sales Management of Production Waste

Risk Scenarios: A certain machinery manufacturing company sold metal scrap generated during the production process to external parties, with annual sales reaching 1 million yuan, but these sales were not reflected in its accounting records.

Optimization Plan:

Establish a logbook for recording the receipt and issuance of scrap materials

Set up the accounting account “Other Operating Revenue—Sales of Scrap Materials”

Summarize sales on a monthly basis and issue invoices

Accrue output VAT at the 13% tax rate

Tax Savings: By following the proper procedures, you can avoid the risk of having to pay 130,000 yuan in back VAT (1,000,000 × 13%).

Case 2: Accounting for Contributions of Intangible Assets

Risk Scenarios: A technology company made an investment using patented technology with an appraised value of 5 million yuan without completing the necessary tax procedures.

Compliance Recommendations::

Commission a professional organization to conduct a technical assessment

Specify the terms of technology transfer in the investment agreement

Recognize revenue from technology transfers based on the appraised value

Pay Value-Added Tax at the 6% rate

Risk Aversion: Following standard operating procedures can prevent a tax loss of 650,000 yuan (5,000,000 × 13%; Note: The current tax rate applicable to technology transfers is 6%).

Case Study 3: Optimizing Employee Benefit Costs

Risk Scenarios: A certain company purchases high-end commercial health insurance for its management at a cost of 200,000 yuan per year, which is directly recorded as a benefit expense.

Improvement Plan::

Convert commercial insurance to supplemental medical insurance that complies with regulations

The excess amount is included in the employee's wages and salaries

Withholding and Remitting Individual Income Tax in Accordance with the Law

Deductible from taxable income within the limits permitted by tax law

Risk Management: This helps avoid personal income tax withholding risks caused by improper expense deductions.

Please note: The case data above is for reference only. Specific tax treatment is subject to the latest policies and the determination of the competent tax authorities. We recommend that companies consult a professional tax advisor before implementation. Interested in obtaining a customized risk management plan tailored to your industry’s specific characteristics? Scan the QR code to add us on WeChat.jxhcyb, We offer one-on-one assessments!

We provide domestic (Shenzhen, Guangzhou, Shanghai, Beijing, Hangzhou, etc.) company registration, overseas (Hong Kong, the United States, Japan, the United Kingdom, Singapore, Thailand, Vietnam, etc.) company registration, Hong Kong identity application and renewal services, while covering the cross-border tax planning, shareholding structure design, compliance and risk control programs, such as the whole chain of corporate services. Feel free to contact me at any time with your needs, Tel:18148556832, microsoft:jxhcyb(can be added by searching directly) or scan the QR code below to add

III. Three Key Points for Corporate Tax Management Transformation in the Era of the Fourth Phase of the Golden Tax System

Phase IV of the Golden Tax System has enabled data interconnectivity among multiple departments, including tax, banking, and industry and commerce, ensuring that every transaction and every invoice issued by a business is subject to regulatory oversight. Corporate tax management must undergo the following three major transformations:

1. Preventive Measures

Establish a tax risk early-warning mechanism to shift from reactive response to proactive prevention. Through an intelligent monitoring system, identify potential risk points in advance—such as discrepancies between purchase and sales invoices or excessive fluctuations in the tax burden rate—and intervene before risks materialize.

2. System Administration

Establish a tax management system that covers all tax types and the entire process, achieve integrated business, financial, and tax operations, and eliminate information silos. Integrate business, financial, and tax data to ensure that filing data aligns with operational data.

3. Data-Driven

Replace experience-based judgment with big data analysis to enable precise decision-making and intelligent tax filing through a tax data hub. Use digital tools to automatically extract invoice data and generate tax returns, thereby reducing human error and improving filing efficiency.

Transformation Value: Embedded tax compliance management not only effectively mitigates policy risks but also creates tangible value through tax planning, capital optimization, and other measures, transforming the tax department from a cost center into a profit center.

IV. Recommendations for Corporate Implementation

Companies should develop a phased transformation plan and, with the assistance of professional organizations, gradually achieve the digital transformation of their tax management:

Phase I: Conduct a self-assessment of existing tax risks and implement corrective measures based on the 16 high-frequency scenarios

Phase II: Establish internal management standards such as a scrap ledger, revenue recognition system, and pricing documentation for related-party transactions

Phase III: Implement a tax management system or use specialized financial and tax software to enable automatic data collection and filing

Phase IV: Conduct regular tax health checks and continuously optimize the tax management system

Friendly Reminder: Under the Golden Tax Phase IV initiative, tax compliance is no longer an “optional” requirement but a “mandatory” one. We recommend that companies conduct a quarterly tax compliance self-assessment, focusing on high-risk areas such as the sale of scrap materials, related-party transactions, and supplementary medical insurance. Would you like to receive guidance on strategies for navigating Golden Tax Phase IV and advice on establishing a tax management system? Scan the QR code to add us on WeChat.jxhcyb, We offer one-stop tax compliance services!

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