What Are the Tax Benefits of Trusts?

The trust tax system is an emerging financial activity, which refers to the general term for tax policies, regulations and systems related to trust behaviors and trust parties. Specifically, it refers to the various taxes levied on trust acts and the transfer, management, and benefit of property between the parties. It is a part of economic activity, and all the processes will result in the increase or decrease of the property between the parties involved in the trust.

Trust tax system

In building our country

Japan's

China's

(I) Principles of Trust Taxation

Drawing on the practices of the western countries, the taxation of China's trust industry should adhere to the following four basic principles:

1. Beneficiary taxation principles.

According to China's taxation of income from trust, there are five main schemes: one is to tax the beneficiary and not tax the trust itself; the other is to exempt the beneficiary and tax the trust itself; The trust itself is taxed at the same time, but the tax already levied on the trust itself is deducted when taxing the beneficiaries: the fourth is the simultaneous taxation of the beneficiaries and the trust itself, but the tax rate is reduced: the fifth is the introduction of profits tax. Fundamentally, the first four schemes embody the principle of trust ducts to varying degrees. Specifically, the second scheme is contrary to the principle of taxation of income and has never been used; the third scheme treats the trust itself as a taxpayer and appears in countries such as the United Kingdom and the United States, because most trusts in the United States and other countries It has developed into a large-scale fund; the fourth and fifth schemes not only need to modify China's income tax law, but also have complicated collection management, high tax costs, and are not operational. Therefore, China's trust tax system should be taxed with the beneficiary as the taxpayer.

2. The principle of no increase or decrease in tax burden.

According to the principle of the trust conduit, the trust is only a channel through which the beneficiary achieves a certain purpose, so the tax burden of any business activity carried out by the beneficiary through the pipeline shall not be higher than the tax burden borne by the beneficiary in carrying out the business activity in person. Taking the real estate trust deed tax as an example, the trustee obtains the trust property (real estate) from the client, sells it to a third party after a certain period of management, and delivers the entire lease income and sale income to the beneficiary. The deed tax on real estate ownership or use right transferred from the client to the trustee and then to a third party shall not be higher than the deed tax on the real estate ownership or use right transferred from the client directly to the third party negative. Conversely, in other cases, if the trustee manages the trust property and obtains income, it is subject to income tax once. Thereafter, the trust income is distributed to the beneficiary. At this time, the beneficiary must pay income tax on this income. This violates the principle of no increase or decrease in tax burden. This principle is currently accepted by most countries.

3. The taxation principle of generarianism.

According to the principle of the trust duct, the trustee's acquisition of the trust property is deemed to be the beneficiary's acquisition of the property. Therefore, the taxable items that occur when the trustee manages and uses the trust property shall be treated as the taxable items that occur when the beneficiary personally uses the trust property. The beneficiary shall have its tax liability when the taxable item occurs, and the required tax shall be directly deducted from the trust property by the trustee. In income tax, the trust income under the trustee's management has generated trust income. Even if the income is not actually distributed in the year in which the income occurs, the beneficiary should incorporate the trust income of that year into the beneficiary's income for the year. Pay taxes.

4. Principles of tax incentives for public trusts.

According to the principle of the trust duct, the delivery of trust property by the client to the trustee of the public welfare trust shall be deemed as the client has actually donated the corresponding property to the public welfare project or group, so the trust property delivered by the client shall be at the forefront of the income tax of the client support. Although the trustee of a public welfare trust is a trust company, when a trust company manages public trust property, it shall enjoy various tax benefits that a public welfare group shall enjoy. Trusts set up for the public interest in the development of science, education, health, protection of the ecological environment, and relief from disasters are special purposes to be achieved by national and social policies. Article 61 of China's "Trust Law" stipulates that the state encourages the development of public trusts. When formulating the trust tax system, the special characteristics of public trusts should also be considered. Through certain tax reduction and exemption policies, the benefits of trusts can be expanded, thereby encouraging parties to enthusiastically invest in public welfare.

(2) The framework of the trust tax system

China's tax law has not yet made specific provisions on trust behaviors, but the substantial tax treatment provisions for trust behaviors are scattered in various related taxes or supplementary notices. From the experience of western countries, the trust tax system of western countries involves almost all links of all taxes and trust business, but generally does not set up trust tax separately. The taxation rules of trust are scattered in the legal provisions of each tax type. . From establishment to termination of a trust, the trust must go through three stages: trust establishment, trust survival and trust termination. Countries generally levy capital gains tax on the establishment of the trust; in the trust survival stage, levy turnover tax and income tax on trust property income, and levy income tax on trust remuneration; Taxes such as income tax and inheritance tax are collected at the termination of the trust. In addition, foreign tax systems generally provide tax reductions or exemptions for public trusts (An Tifu, Li Qingyun, 2004). Therefore, the establishment of a new trust tax system framework should be based on China's current trust tax system and designed in accordance with the above principles.

1. Business tax, value added tax and its surcharges.

When the trust is established, if the trust property is a business tax taxable real estate or intangible asset, the trust trustee is a business tax payer and shall pay business tax and its surcharges in accordance with the market value of the taxable real estate or intangible asset. However, if the trust document stipulates that the client and the beneficiary are the same person, the business tax is exempted. If the trust property is taxable goods with value added tax, the client shall pay VAT and its surcharges based on the market value of the taxable goods.

During the duration of the trust, the trustee's management and disposal of trust property's business activities are not materially different from other non-trust business activities. All taxes should be paid in accordance with the current tax system, and separate accounting and deductions should be made in the trust income for the benefit. The person or client ultimately bears the taxes. If the trustee uses trust funds to buy and sell stocks, bonds, etc., he should pay business tax and its surcharges, stamp duty, and real estate tax; if the trustee is involved in the sales of VAT taxable goods, he should pay VAT and its surcharges. The trust remuneration obtained by the trustee during the existence of the trust is used as operating income, and the trustee pays business tax and its surcharges.

When the trust is terminated, the transfer of trust property does not constitute a sale in accordance with the principle of "substance over form" and is not subject to business tax and its surcharge. If VAT taxable goods are involved, the transfer of taxable goods from the trustee to the beneficiary does not constitute sales during the termination of the trust. Considering the integrity of the VAT deduction mechanism, these taxable goods can be sold to the beneficiary. VAT (and its additions) is calculated again, and the VAT input tax held by the trustee to be offset can be deducted from the beneficiary's output tax.

2. Income tax.

When the trust is established, if the client is a legal person or organization, and the trust property is VAT taxable goods, business tax taxable real estate and intangible assets, then the client needs to merge the taxable income generated from the sale of the trust property into the enterprise taxable Income, pay corporate income tax. During the life of the trust, the trustee is responsible for the internal corporate income tax on the taxable income brought by its own operating income. In addition, in order to prevent the trustee and the beneficiary from incurring heavy income tax on the same income, the trustee should also be required to separately account for and pay the trust income of the enterprise for the trust income.

When the trust is terminated or the trust income is distributed, the beneficiary will return the trust income from the trustee. The income tax on trust income is carried out before the tax ground. If the beneficiary is an individual, the beneficiary may offset the current or future payable tax on the difference between the trust income tax already paid by the trustee and the personal income tax payable on the trust income. The trust income corporate income tax paid by the trustee is lower than the individual payable by the beneficiary, and the beneficiary shall pay the difference in tax.

3. Other taxes.

When a trust is established, the client and the trustee shall pay stamp duty on the trust contract established. The trust property is deed taxable real estate, which is exempt from deed tax at this stage. During the duration of the trust, if the trust property is real estate and real estate, the trustee shall pay property taxes such as real estate tax and urban land use tax in accordance with relevant regulations. If the trustee operates real estate, the trustee pays land appreciation tax. If the trustee readjusts the investment, the resulting fiscal transfer shall pay stamp duty at the corresponding tax rate.