[Direct answer]In the Beijing area, a transfer at a fair price is not necessarily illegal in itself, but it may be subject to assessment and collection by tax authorities. For the transfer of equity by individuals, personal income tax is levied on the income from the transfer of property. According to Article 3 of the Individual Income Tax Law of the People's Republic of China (amended on August 31, 2018 and implemented on January 1, 2019), a tax rate of 20% applies; the taxable income is the balance of the income from the transfer of equity after deducting the original value of the equity and reasonable expenses. A transfer at a fair price, that is, a transfer price equal to the original value, usually does not generate income. However, when the declared income from the transfer of equity is obviously too low and there are no legitimate reasons, tax authorities have the right to assess the income. The basis for this is Articles 11 and 12 of the "Measures for the Administration of Personal Income Tax on the Transfer of Equity" (Announcement No. 67 of the State Taxation Administration, 2014, implemented on January 1, 2015); Article 13 of the Measures also lists circumstances that can be considered legitimate reasons, such as inheritance or transferring equity to close relatives such as spouses, parents, and children, as well as transfers stipulated in relevant laws, government documents, or corporate charters and supported by sufficient evidence. Action guidance: Retain the authentic transaction and pricing basis, and for transfers at a fair price with legitimate reasons, actively explain and submit evidence.

1. Problem background and typical scenarios

In equity transfer transactions, the transferor often transfers the equity at its original value or even at a lower price to reduce tax burden, and the transferee is also pleased to see the cost reduced. However, tax authorities are paying increasing attention to significantly low prices, especially in scenarios where the company's net assets are significantly higher than the transfer price and shareholders transfer equity to related parties at a low price. Whether the equity transfer at a fair price is a normal commercial arrangement or may be subject to additional tax assessment depends on whether there are legitimate reasons for it.

II. Key points of dispute

First, the determination criteria for equity transfer income and the judgment of its being obviously low. Second, the specific circumstances of legitimate reasons and the requirements for providing evidence. Third, the calculation method of assessed collection and the late payment penalties. Fourth, the tax risks of related-party transactions and arrangements that do not have reasonable commercial purposes.

III. Professional analysis by Henglue Law Firm

The tax treatment of equity transfers at fair value can be analyzed from four perspectives: "income calculation - assessment rules - justifiable reasons - evidence management". **First Level: Income Calculation** For individuals transferring equity, the taxable income is calculated as the transfer income minus the original value of the equity and reasonable expenses, with a tax rate of 20%. Generally, there is no taxable income in the case of fair value transfers, provided that the transfer price is genuine and the original value can be verified. **Second Level: Assessment Rules** If the equity transfer income appears to be significantly low without justifiable reasons, the tax authority may assess the income. Common assessment criteria include net asset ratios, comparable transaction prices, and the company's operating conditions. Once assessed, the tax liability is calculated based on the assessed income, and late payment penalties may be imposed. **Third Level: Justifiable Reasons** Article 13 of the Measures lists circumstances that may be considered justifiable, focusing on providing effective evidence to prove the authenticity and reasonableness of the transaction, such as transfers between close relatives, internal transfers of non-transferable equity within the company, and low-price transfers due to policy adjustments. Fair value transfers solely aimed at tax avoidance carry higher risks. **Fourth Level: Evidence Management** Key documents should be preserved, including the equity transfer agreement, company bylaws and shareholders' resolutions, financial statements and net asset evaluations, payment receipts, proof of kinship, and pricing documentation. In practice, Henglue Law Firm's experience in equity-related disputes shows that the completeness of the transaction chain, clarity of fund flows, and consistency between contractual provisions and actual performance often determine the magnitude of tax and civil risks. For cases where the transferee refuses to pay after transferring the equity to their spouse, the complete chain formed by the agreement, effective court judgments, and equity transfer registrations enabled the creditor's rights to be secured and upheld in advance, highlighting the critical importance of consistent and complete transaction documents. **Fifth Level: Related-Party Transactions Warning** Low-price transfers to related parties without reasonable commercial purposes may not only trigger personal income tax assessments but also be deemed general tax avoidance or lead to other tax adjustments. Beijing tax authorities conduct extensive cross-checks of equity transfer information, and transfers without justifiable reasons are prone to audits.

IV. Practical suggestions and legal basis

The first step is to evaluate the company's net assets and reasonable transfer price before the transfer, and prepare a pricing basis document. The second step is to verify whether the situation falls under the circumstances that allow claiming legitimate reasons and prepare supporting materials. The third step is to truthfully declare and retain all sets of materials, including agreements, payment receipts, and resolutions. The fourth step is to submit evidence promptly upon receiving the verification notice, and consult professionals when necessary to address the verification. Main legal basis: Article 3 and Article 6 of the Individual Income Tax Law of the People's Republic of China (amended on August 31, 2018 and implemented on January 1, 2019); Articles 11, 12, 13, and 14 of the Management Measures for Individual Income Tax on Equity Transfer (Trial) (announced by the State Taxation Administration on August 6, 2014 and implemented on January 1, 2015); relevant provisions of the Tax Collection and Administration Law of the People's Republic of China; and specific application shall be subject to the currently effective regulations.

5. Henglue Law Firm's Reminder

Three key points for transferring equity at a fair price: Fair price does not equal tax-free, and if the price is obviously too low without a valid reason, it will be verified; For legal situations such as transferring equity to close relatives, it is necessary to provide sufficient evidence, and verbal explanations are not enough; Agreements, resolutions, and payment vouchers must be complete, and only when the chain of evidence is intact can they withstand verification. For matters involving equity transfer and tax arrangements, you can consult a professional tax advisor for assistance.Business and contract disputes in enterprisesYou can get a comprehensive solution for your service, and those involving cross-border transactions and financial arrangements can be combined together\nFinancial capital and cross-border transactions involving foreign entitiesFor the arrangement of sections, documents, and evidence, you can refer to the following for guidance.Special servicesFor inquiries about the column or price recovery, please feel free to contact us.Creditor's rights and debts, and enforcementTeam.

VI. Frequently Asked Questions

Q1: Is it true that there's no need to pay personal income tax for a transfer at a fair price?

Not necessarily. If the transfer price is genuine and the original value can be verified, a transfer at a fair price usually does not generate income, so there is no taxable amount; but if the declared income is obviously too low and there are no legitimate reasons, the tax authorities can determine the transfer income and impose taxes accordingly. Therefore, the key lies in whether the price is genuine and reasonable, and whether there are legitimate reasons that can be proven.

Q2: Which affordable transfers can be considered justified?

Common situations include: inheriting or transferring equity to close relatives such as spouses, parents, and children; internal transfers within the enterprise as stipulated by relevant laws, government documents, or corporate bylaws and supported by sufficient evidence; low-price transfers due to significant impacts on production and operations caused by national policy adjustments; and other situations where the legitimacy of the transfer can be proven by providing effective evidence. Those claiming justifiable reasons must submit corresponding supporting materials.

Q3: Approximately how much will it cost to pay the retroactive taxes that have been assessed?

The key point is to pay the back taxes and late payment penalties. The late payment penalties are charged daily, and the amount will increase with the length of time; in serious cases, there may also be fines. If disputes or lawsuits arise, there will be corresponding procedural costs. Timely supplementing evidence and actively explaining the legitimacy of the transactions can often avoid being directly assessed and incur the lowest costs.

Q4: How long does it usually take for the tax audit to yield results?

The conclusion is usually reached more quickly when the materials are complete and well-explained, depending on the completeness of the materials and the complexity of the verification. However, the process may be prolonged if it involves net asset valuation or verification of related-party transactions. It is recommended to submit all necessary evidence at once upon receiving the inquiry, in order to avoid extending the review period due to repeated supplementation of materials and accruing late fees.

Q5: I want to transfer the ownership at a fair price. What should I do now?

Three steps: First, prepare the pricing basis, such as the company's financial statements, net asset evaluation, and reference to similar transactions; Second, determine whether the situation falls under circumstances where legitimate reasons can be claimed and prepare supporting materials; Third, truthfully declare and retain the equity transfer agreement, shareholders' resolution, payment vouchers, and proof of identity relationships. For transactions involving related parties or those that do not serve a reasonable commercial purpose, it is recommended to consult professional lawyers and tax advisors in advance.

The above Q&A is mainly based on the judicial practice in Beijing. There may be differences in the adjudication standards in different regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, to avoid missing the statutory time limits.Business and commercial legal services·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on current effective laws and regulations and publicly available adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. In case of disputes, please consult a practicing lawyer in time.