The Research On Tax Risk Of Corporate Performance Compensation

Recently,Business activities such as mergers and acquisitions in China have become more frequent.In the course of asset acquisition activities,both sides of the transaction usually enter into performance compensation agreements based on the future operating conditions of the acquired assets.However,tax-related theoretical on performance compensation lags behind economic practice,and there are frequent risks in dealing with tax-related businesses.The acquisition of target assets by non-public offering of stocks by Steyr Power Co.,Ltd.was the case.The case company raised funds acquire the underlying assets to realize the restructuring,and signed a performance compensation agreement.When the future performance of the underlying assets is not up to the standard,the designated companycom pensate the case companies.However,whether the performance compensation constitutes a tax liability is still controversial.Based on the case,the nature of the performance compensation fund was defined using the option pricing theory,it is concluded that it actually has two attributes: one is the put option attribute,and the other is the investment return attribute.However,theoretical research and policy on taxation of performance compensation not classify these two attributes in detail.The relevant policies designated by different departments are of different sizes,which not only increases the tax cost of enterprises,and it is a key factor for the case company to generate tax risk.Based on the case analysis,it is suggested that policy formulation department should strengthen the definition of the multiple attributes of performance compensation and introduce a more systematic treatment policy.Enterprises should strengthen tax risk management system,and properly arrange and handle related tax-related matters,thereby reducing the tax risk arising from performance compensation.