Financial leasing industry to face what changes in the implementation of the rules of the change of business tax to value-added tax

The much-anticipated business tax to value-added tax (hereinafter referred to as "business tax to value-added") rules have finally landed on March 24, the Ministry of Finance, the State Administration of Taxation issued the "Notice on the Comprehensively Pushing Forward the Pilot of Business Tax to Value-added Tax", since May 1, 2016, the pilot of the comprehensively pushing forward the pilot of the business tax to value-added tax on a nationwide scale.

The financial leasing industry was included in the business tax change pilot program as early as 2013. What are the changes in the policies involving the financial leasing industry in the Measures for the Implementation of the Pilot Scheme for the Conversion of Business Tax to Value-added Tax (hereinafter referred to as the Measures) announced this time? What impact will it bring to the financial leasing industry? What are the subsequent issues that need to be paid attention to?

In response to the above questions, Sha Quan, an expert in financial leasing, told the reporter that the principles of differential taxation, instant levy and instant refund, taxpayers must have the qualification of financial leasing operation, and the paid-in capital of leasing companies must be greater than 170 million remain unchanged in the Measures. Changes are, VAT rate is divided into four tax rates; "direct lease" and "leaseback" classification tax; real estate leasing and tangible movable property leasing taxed at different rates; difference in tax deductions have changed; operating leases, including intangible assets and so on.

"For the leasing industry, the biggest highlight of the Measures is that 'direct leasing' and 'leaseback' are taxed in different categories." Sha Quan said.

According to the Measures, "direct leasing" is categorized as "leasing services", which is also divided into "financial leasing services" and "operating leasing services". The classification of "direct leasing" is divided into "leasing services", which is also divided into "financial leasing services" and "operating leasing services". Among them, financial leasing services refer to leasing activities characterized by the nature of financing and transfer of ownership. Operating lease service refers to the transfer of tangible movable or immovable property to others within the agreed period of time and the ownership of the leased property does not change the business activities.

Sha Quan said the definition of financial leasing has not changed, but "according to the different subject matter of the lease, financial leasing services can be divided into tangible movable property financial leasing and real estate financial leasing." Changed the "tangible movable property financial leasing" as a single subject matter of the tax standard.

At the same time, the Measures also expand the scope of taxation of the subject matter of "business leasing services" into "business leasing of tangible movable assets" and "business leasing of immovable assets". The tax policy of "business leasing services" has also been expanded to include "business leasing of real estate" and "business leasing of tangible movable property", and "leasing of advertising space in buildings, structures and other real estate or aircraft, vehicles and other tangible movable property to other units or individuals for the purpose of publishing advertisements", and "parking services for vehicles and road access services", "Light leasing business for waterway transportation and dry leasing business for air transportation" are all subject to VAT according to business leasing services. These have expanded the scope of business for which leasing companies can use the subject matter.

What is noteworthy is that the Measures emphasize that "financial leaseback" is not subject to VAT under this tax item. In the Measures, "financing sale and leaseback" is classified as "loan service". Sha Quan said, this means that "leaseback" is taxed at the tax rate of loans, but it is not recognized that "leaseback" belongs to financial assets, and leased assets cannot be taxed according to the "Accounting Standards for Recognition and Measurement of Financial Instruments" (ASRFI). "Lease assets cannot be accounted for under the "Accounting Standards for Recognition and Measurement of Financial Instruments", but only under the "Accounting Standards for Leases".

Additionally, according to the Measures, there are four VAT rates: 6%, 11%, 17% and zero rate. Among them, the financing sale and leaseback tax rate is 6%, the real estate leasing tax rate is 11%, and the tangible movable property leasing tax rate is 17%.

Sha Quan said, the original tax is only for "tangible movable property" financial leasing, and "direct lease", "leaseback" mixed together, so there is only one 17% tax rate. After the promulgation of the Measures, all the tax rates will be reduced to 17%. After the promulgation of the Measures, all "leaseback" businesses use 6% VAT invoices; "direct leasing" of immovable property uses 11% VAT invoices, and "direct leasing" of tangible movable property uses 17% VAT invoices. The "direct lease" of immovable property uses an 11% VAT invoice, and the "direct lease" of tangible movable property uses a 17% VAT invoice, no longer using a single-rate invoice.

In fact, previously for the leasing industry camping after the increase, industry insiders generally believe that the leasing industry is still subject to a heavier tax burden, is not conducive to the development of the industry. "'Leaseback' tax rate from 17% to 6% after the change, than the original business tax tax burden is as much as twice as much as the tax burden down to only 30% higher than the original business tax." Shaquan said.

Overall, for the leasing industry, the industry division of taxation has not changed; accounting and tax principles according to leasing accounting standards have not changed. But due to the tax rate adjustment, shorten the gap between the original business tax.

What is worth paying attention to is that the "Measures" in the financial leasing is still using the principle of differential taxation. Among them, the "tangible movable property financing leaseback" service can be taxed differently, but the real estate "leaseback" is not enjoy the differential tax treatment.

Sha Quan believes that financial leasing is a lease to achieve the purpose of financing in the form of financing, not financing and financing separately, but a unified operation. Therefore, taxable services and taxable goods are mixed together and cannot be separated is the exclusive characteristics of financial leasing. In order to reasonably pay taxes can only be used in the form of differential tax deduction unreasonable factors.

For the "paid-in capital must be greater than 170 million" of the applicable provisions, Sha Quan emphasized that financial leasing is a capital-intensive industry, the need for leasing companies to have a sufficient amount of capital to operate, not to say that take a business qualification can enjoy the differential tax policy treatment. "The main purpose of this provision is to prevent the emergence of the phenomenon that enterprises that only take the license but do not do business occupy the leasing tax policy resources due to the unsound access mechanism." Sha Quan said.