Research On Accounting And Tax Treatment Of Performance Compensation For Merger And Reorganization Of LYiTECH

In my country’s increasingly mature capital market,more and more M&A and restructuring methods are being used by listed companies to expand their business operations and increase their profitability.However,the information asymmetry of the acquisition of the underlying assets by both parties has affected it to a certain extent.The effect of mergers and acquisitions,so the introduction of performance commitment compensation agreement mechanism.At present,performance commitment compensation agreements are increasingly used in mergers and acquisitions and restructuring businesses.It is not uncommon for the acquired party to achieve performance commitments to compensate the acquiring party.However,the current accounting standards for the accounting treatment of performance compensation receipts and payments and the tax law There is no clear regulation on the corporate income tax treatment issues involved in performance compensation.As a result,companies may have different tax treatment methods for this matter.The different treatment methods may reduce the comparability of statement data,thereby affecting the decision-making of accounting information users.This paper selects the case of LINGYIiTECH(GUANGDONG)COMPANY(hereinafter referred to as “LYiTECH”,stock code 002600)merging Shenzhen Dongfang Liangcai Precision Technology Co.,Ltd.(hereinafter referred to as "Dongfang Liangcai")under different control.Because Dongfang Liangcai failed to achieve the expected profit level agreed during the performance commitment period,it took more than two years to undertake the responsibility of performance compensation There are also some situations,such as the distribution of share dividends and the pledge of shares that should be compensated.Therefore,the cases are comprehensive and representative.Using the methods of literature research and case analysis,this paper comprehensively considers the economic essence of performance compensation and the economic consequences of tax treatment,elaborates and analyzes the rationality of tax treatment of cash and share performance compensation received by LYiTECH by stages,and tries to explore a more reasonable way of tax treatment of performance compensation,so as to provide reference for practitioners and regulators.LYiTECH regards the performance commitment compensation agreement signed with Dongfang Liangcai as contingent consideration in the business combination.In the accounting treatment,when the initial measurement is carried out,the expected profit level of the merger and acquisition parties will be reached,so the financial assets are not recognized or the amount is recognized as zero.In the follow-up measurement,LYiTECH deducts the cash compensation received against the book value of financial assets,treats the repurchased and cancelled shares as disposal,and confirms the investment income on the day of cancellation;LYiTECH also accrues Dongfang Liangcai’s provision In addition to the impairment loss of goodwill,these will have a significant impact on the company’s current profit and loss.In tax treatment,the performance compensation that is included in the fair value change profit and loss account will be reduced by the taxable income,and the investment income confirmed by the repurchase and cancellation of shares will be included in the taxation scope of corporate income tax for corporate income tax.This article believes that this kind of tax treatment is unreasonable.The economic nature of the performance commitment compensation agreement is a valuation adjustment agreement.The performance compensation received by LYiTECH is actually a return of the M&A consideration paid in the previous period.It is not the true profit of the company.The compensation is included in the profit and loss account and included in the company.The scope of income tax levy does not conform to the economic essence of performance compensation;from the perspective of economic consequences,this treatment will cause the profit and loss of the current period of receiving performance compensation to change significantly,which will also affect the current income tax expense.Therefore,comprehensively considering the economic substance and economic consequences,this article proposes that when receiving performance commitment compensation,the accounting treatment should be based on the performance compensation received to offset the initial investment cost of long-term equity investment.In tax treatment,due to the received Performance compensation is regarded as a refund of the previous acquisition price,does not affect the current profit and loss,and is not included in the taxation scope of corporate income tax.When the long-term equity investment has not been disposed of,the book value of the long-term equity investment is reduced due to performance compensation received in accounting,and the original tax basis is still used for the failure to dispose of it in taxation.Therefore,the book value of accounting and the tax law Inconsistent tax bases will result in deductible temporary differences.When the company disposes of long-term equity investments,the net income after deducting costs will be included in the “investment income”and included in the taxation scope of corporate income tax.Finally,the paper puts forward relevant suggestions.It is recommended that my country’s accounting standards and tax laws clearly stipulate the tax treatment of performance compensation receipts and payments;when paying the consideration for mergers and acquisitions,it is possible to fully consider the achievement of performance commitments after the merger and choose to pay the consideration in installments,thereby avoiding the receipt and payment of performance compensation taxation.The diversity and irrationality of the treatment can also effectively avoid the situation that the performance commitment compensation agreement may not be effectively implemented.Finally,the paper puts forward some suggestions.It is suggested that China’s accounting standards and tax laws should make clear provisions on the tax treatment of performance compensation;when paying the consideration for M & A,we can fully consider the realization of performance commitment after M & A,and choose to pay the consideration by installments,so as to avoid the diversity and irrationality of the tax treatment of performance compensation,and effectively avoid that the performance commitment compensation agreement may not be effectively implemented What’s going on.