Tax authorities may be getting it wrong when it comes to authors’ income derived from WeChat articles. How exactly should it be taxed under income tax and VAT legislation?
nowadays, it is a common way for companies to use WeChat official accounts for publicity. When an employee posts articles on the company’s official account, he/she will receive authorship remuneration for contributing the articles. Regarding tax on the employee’s remuneration, there still exist errors in tax law enforcement.
Some tax authorities hold that “if individual income tax on the employee’s remuneration is declared as “authorship remuneration”, the value-added tax (VAT) should be handled as a tax on “labour services”, namely, on sales service. If VAT is handled as a tax on “transfer of individual’s copyright”, then individual income tax should be declared as taxable item of royalties.
According to the provisions of the Copyright Law and its implementing rules, the act of an employee submitting and publishing articles on a company’s official accounts belongs to the exercise of publication right. Thus, the fundamental legal act generating the employee’s remuneration shall be deemed as copyright licensing.
Individual income tax
Among the nine taxable items provided in the Individual Income Tax Law (2018), the most relevant ones are “income from authorship remuneration”, “income from remuneration for labour services”, and “income from royalties”.
Firstly, as compared to the 2011 version of the Regulation on the Implementation of the Individual Income Tax Law, the 2018 amended Regulation on the Implementation of the Individual Income Tax Law changed the definition of “income from authorship remuneration” from “the income obtained by individuals from the publication of their works in the form of books, newspaper articles or periodical articles” to “the income obtained by individuals from the publication of their works in the form of books, newspaper articles or periodical articles, among others”, simply adding “among others”, which expands the scope of publication forms. Thus, employees obtaining remuneration for publishing their articles on a company’s official accounts fall within “income from authorship remuneration”, as provided in the new 2018 Individual Tax Regulation.
Secondly, Paragraph 1(4) of article 6 of the 2018 Individual Tax Regulation provides that income obtained by individuals from providing copyrights excludes income from authorship remuneration. Although both “income from royalties” and “income from authorship remuneration” are based on the income from copyright licensing, “income from authorship remuneration”, as an exception, is excluded from “income from royalties”, and is set as an income taxable item under tax law. Therefore, the tax authority’s determination of “income from authorship remuneration” as “income from royalties” is an error in applying tax law.
Thirdly, paragraph 1(2) of article 6 of the 2018 Individual Tax Regulation provides that “income from remuneration for labour services” means “the income obtained by individuals from providing labour services, including income obtained from services in designing, decoration, installation … and other labour services”.
Does the employee’s remuneration falls within the above-mentioned items of “income from remuneration for labour services”, or should it be classified as “income from other labour services”? Based on its legislative principle, the Individual Income Tax Law, when determining the scope of taxable income, adopts that, “where the law explicitly stipulates, taxation will be imposed” rather than miscellaneous provisions, which means “income from other labour services” in the Individual Income Tax Law needs to be clearly stipulated by competent authorities such as the State Administration of Taxation (SAT), otherwise it shall not be applied extensively without authorization.
Currently, the SAT and other authorities have not issued applicable documents regarding this issue. Therefore, the employee’s remuneration is not “income from other labour services” and shall not be declared and paid as “income from labour services”.
Error in application of law
Article 1 of the Interim Regulation on Value-Added Tax provides that “Entities and individuals that sell goods or labour services of processing, repair or replacement (hereinafter referred to as labour services), sell services … within the territory of the People’s Republic of China are taxpayers of VAT, and shall pay VAT in accordance with this regulation.” The fundamental legal act of employee’s remuneration is copyright licensing, which obviously does not fall within the scope of the above “labour services of repair or replacement”. Therefore, tax authorities’ determination that employee’s remuneration should be declared as “labour services” for paying VAT is obviously far from the fact, and is an error in applying the law.
Article 1 of the Regulation on Value-Added Tax, article 2 of the Notice on Implementing the Pilot Programme of Replacing Business Tax with Value-Added Tax in an All-round Manner (No.36  of the Ministry of Finance) and article 1 of its “Annex 3: Provisions on the Transitional Policies for the Pilot Programme of Replacing Business Tax with Value-Added Tax” provide that an individual’s transfer of copyright is exempted from VAT taxation. Since an employee’s act of submission and publication falls within the scope of selling intangible assets, he/she should pay VAT, but could enjoy the favourable tax policy of VAT exemption.
The declaration and payment systems of individual income tax and VAT are two completely different tax levy systems, and should be applied to judge the act of “employee’s writing and publicity licensing” in accordance with their respective legal provisions. In fact, there is only one act for employees, namely copyright licensing.
With employees who get paid because of this act, the taxable item of their individual income tax and VAT should be determined in accordance with the Individual Income Tax Law and the regulations on VAT, respectively. To determine an employee’s legal act under Copyright Law, simply based on the fact that there are similar terms of taxable items in the tax laws, or the literal consistency is kept, would inevitably lead to errors in applying the law. It is ridiculous to transform one legal act into two legal acts without any basis due to such an error.
The incorrect opinions of tax authorities mentioned at the beginning of this article are not unusual in tax practice. Taxpayers should note that when making a tax declaration, they should bring the relevant evidential material, fully communicate with the tax authorities, and engage professional tax lawyers to assist them when necessary. If communication does not work, legal relief such as administrative reconsideration and administrative litigation could also be considered.
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