Research On Income Tax Payable Of Valuation Adjustment Mechanism

Nowadays more and more companies have signed VAM(Valuation Adjustment Mechanism)in investing and trading,to reduce the investment risk of investors who do not fully understand the information of the transaction.Generally speaking,both parties will agree on some terms like the expected net profit of the investment target enterprise or the completion of the listing within a few years,if the target companies realize the agreement,the financing party will create profits because it gets the investment funds to expand the scale of operations,and the investors will gain profits through investment activities.In this case,the agreement may stipulate that the investor will increase the investment for the financing party.If the target companies have not reached the agreed operating performance or failed to listing,the financing party shall make corresponding compensation to the investor,and if the equity payment is allowed,the investor is allowed to repurchase its equity at a relatively low price.The VAM,rised in abroad,has gradually been applied in China in recent years.Since VAM is different from general equity transactions and has its particularity,China has not yet introduced specific taxation policies related to it.Most companies still use tax treatment in accordance with general equity investment transactions.This article analyses the tax treatment when the performance compensation is cash or equity by the introducing the cases of Hainan Airlines,Sitaier Power,Xingma Motor and points out that this treatment method will make companies have unclear calculation of the amount of taxable income due to the nonstandard accounting treatment rules of contingent consideration,which will lead tax risk for companies.At the same time,this article combines the United States and Australia's mature fair price assessment technology for tax treatment of VAM,Australia's tax treatment provisions for VAM,US accounting standards for contingent considerations,and unfinished transaction methods for tax treatment and staged sales act,it is believed that the U.S.and Australian technologies and practices can effectively avoid such tax risks.On the basis of analysis above and combined with China's current market development situation,this article puts forward five suggestions for the formulation of China's tax policy on VAM: Firstly,it must improve the existing asset assessment system and reduce the cost of using fair valuation technology;Secondly,it is necessary to regulate legally the accounting treatment of contingent considerations;Thirdly,it is vital to improve the relevant laws and regulations concerning the tax treatment of gambling agreements;Fourthly,tax authority should strengthen the supervision of gambling agreements;Fifthly,relevant regulatory agencies must strengthen the information communicate with.