I. Introduction to Private Equity Investment Funds
Private equity fund (PE for short) refers to non-securities investment funds (including industrial investment funds and venture capital funds, etc.). ) set up in a private way, invest in unlisted enterprises and provide value-added services. Private equity investment funds can take the form of corporate system, partnership system and other enterprise organizations according to law. With the promulgation of the newly revised People's Republic of China (PRC) Partnership Enterprise Law, more and more private equity funds choose limited partnerships. Compared with the company system, the limited partnership system has the following advantages:
First, the mode of capital contribution is flexible. The capital contribution of partners includes cash, physical objects, intellectual property rights and land use rights, and the general partners may also make capital contribution with labor services.
The second is to avoid "double taxation" and the tax revenue is relatively low. For the income distributed by individual shareholders of enterprise funds, enterprise income tax and individual income tax shall be paid. For limited partnership funds, the partnership enterprise takes each partner as the taxpayer and pays individual income tax or enterprise income tax respectively, which avoids "double taxation" and has a relatively low tax burden.
Third, the incentive mechanism is effective and the income distribution is flexible. Limited partnership private equity funds can be allocated according to the actual situation of the project, which is flexible and the income can not be allocated according to the investment proportion.
Therefore, the partnership private equity investment fund has become the mainstream of the current private equity investment fund. According to the distribution order of the current mainstream private equity investment fund, firstly, the accumulated paid-in capital of the limited partner is returned; Secondly, pay the limited partner priority return; Thirdly, the reward is distributed to the manager and the general partner according to the agreed proportion of the limited partner's priority return; Finally, the residual income is distributed between limited partners and general partners. This paper mainly discusses the accounting and tax treatment of limited partnership private equity investment funds.
Second, the accounting treatment of partnership private equity investment funds
Because the investors of partnership private equity fund LP (limited partner) have two different understandings of private equity investment, there are two different accounting treatments.
In the first mode, LP investors think that private equity fund investment is to invest in a financial product, and its contribution is accounted for under the subject of "available-for-sale financial assets-industrial funds". The fund (limited partnership) manager adjusts the fair value every year according to the LP account report issued by the audit institution for investors. At the same time, according to the partnership agreement, the recovered dividends and bonuses are included in the investment income as the income during the holding period. Investment recovery and other income will first offset the investment cost of the fund, and then confirm the investment income after the principal is fully recovered. The main advantage of this method is that it follows the principle of conservatism and is consistent with the provisions of the fund's partnership agreement. However, in tax treatment, partnership private equity investment will be regarded as a partnership enterprise to pay taxes first, and there is a time difference between investment income and tax payment in accounting treatment.
In the second way, LP investors regard private equity fund investment as long-term equity investment and account for it under the subject of "long-term equity investment". According to the current accounting standards, this kind of long-term equity investment is accounted for under the subject of "available-for-sale financial assets-long-term equity investment", and its fair value is adjusted according to the statement of the fund carrier partnership enterprise. In this way, investors will take the dividends and dividend income recovered by equity investment funds as the current investment income. Investment recovery and other income are recognized as current investment income after the corresponding investment principal is reduced. The advantage of this method lies in the matching of cost and benefit, but it is different from the capital recovery clause of LP agreement.
Except dividends and dividend income, there is a great timing difference in the recognition of LP investors' income by the two accounting treatments. If it is considered as a fund product, LP investors can't confirm the income until the investment recovers all the principal. If it is considered as a long-term equity investment, the recovery of each investment will bring profits and losses, and the investment income will be confirmed together with the investment project. The two treatment methods have their own advantages and disadvantages, and it is difficult to judge their advantages and disadvantages.
Three. Discussion on Tax Issues of Partnership Private Equity Investment Fund
At present, the Measures for the Administration of Private Equity Funds (Draft) has been submitted to the State Council and is awaiting approval. This method clarifies the policy direction and basic regulatory framework of moderate supervision of private equity investment industry, and clarifies the tax policy of equity investment funds. Partnership equity investment funds and partnership equity investment fund management enterprises do not take income tax as the main body, and adopt the method of "dividing first and then paying taxes". Partners pay individual income tax or enterprise income tax respectively. The dividends, bonuses and other investment income obtained by the partnership equity investment fund from the invested enterprise belong to the after-tax income after paying the enterprise income tax, which can be directly distributed to the legal person partners according to the partnership agreement, and the enterprise income tax is implemented according to the relevant policies. If this regulation is officially released, then the tax on partnership private equity investment funds has also been clearly stipulated, and dividends can be deducted before tax as after-tax income. At the same time, the author has consulted the management methods of private equity investment in various places, and there is no unified treatment standard.
The Ministry of Finance's Notice of People's Republic of China (PRC) and State Taxation Administration of The People's Republic of China on the Income Tax of Partners in Partnership Enterprises (Caishui [2008] 159) stipulates that each partner is a taxpayer of the partnership enterprise. If the partners of a partnership are natural persons, they shall pay individual income tax; If the partners are legal persons or other organizations, they shall pay enterprise income tax. At the same time, it is stipulated that the income from production and operation and other income of a partnership enterprise should be divided first and then taxed. The production and operation income and other income mentioned in the preceding paragraph include the income distributed by the partnership to all partners and the income (profit) retained by the enterprise in the current year. According to this principle, the tax liability of a legal person investing in a partnership in that year will be borne by the investor.
In the provisions on compensation for losses of partnership enterprises, Caishui [2008] 159 stipulates that "the partners of a partnership enterprise are legal persons and other organizations, and when calculating their enterprise income tax, the partners shall not use the losses of the partnership enterprise to offset their profits". The Ministry of Finance's Notice of State Taxation Administration of The People's Republic of China, People's Republic of China (PRC) on Printing and Distributing the Provisions on the Collection of Individual Income Tax for Investors in Solely Owned Enterprises and Partnership Enterprises (Caishui [2000] No.91) stipulates that "the annual loss of an enterprise is allowed to be made up by the income from production and operation of the enterprise in the next year, and the insufficient part in the next year is allowed to be made up year by year, but the longest period shall not exceed 5 years. If investors set up more than two enterprises, the annual operating losses of enterprises cannot be made up across enterprises. "
As can be seen from the above two provisions, the partnership private equity fund can only declare taxes as a partnership, which brings the following problems to investors.
First, it is not clear whether the dividend income of the partnership can be deducted before tax. As an economy specializing in equity investment, the dividend income of limited partnership private equity funds is an important source of income for partnership funds. However, the existing laws and regulations only specify in the Notice of State Taxation Administration of The People's Republic of China City, People's Republic of China (PRC) on the Implementation of Individual Income Tax Collection Provisions for Investors of Sole proprietorship and Partnership Enterprises (Guoshuihan [20065438+0] No.84) that "the interest or dividends and bonuses returned by foreign investments of sole proprietorship and partnership enterprises are not incorporated into the income of enterprises, but should be obtained separately as individual investors, and should be treated as" interest, dividends and bonuses ". It is not clear whether the partners of an enterprise can retain their dividend attributes and "infiltrate" the partnership enterprise and enjoy tax-free treatment.
Second, the loss compensation policy is not clear, and it is not clear whether the intertemporal investment loss can be compensated. According to the provisions of Caishui [2000] No.91,"the annual loss of an enterprise is allowed to be made up by the income from its production and operation in the next year. If the income in the next year is insufficient, it is allowed to make up for it year by year, but the longest period shall not exceed 5 years. " The income from production and operation defined in the above laws and regulations is "the balance of the total income of sole proprietorship enterprises and partnership enterprises after deducting costs, expenses and losses in each tax year", in which the definition of total income does not list the investment income, and it is not clear whether the investment income and investment losses can be made up over time and how to make up for them.
Third, because the losses of cross-enterprises cannot make up for each other, the tax burden of investors who invest in multiple limited partnership funds at the same time is obviously higher than that of investors who directly invest in a single financial product, and investors often hope to balance risks by investing in multiple funds, which may hinder the development of funds.
Fourthly, suggestions on the related issues of partnership private equity investment funds.
Because there is no special provision in the tax law of partnership private equity fund, the development of partnership private equity fund in China has encountered some bottlenecks. The author hopes that relevant management measures will be promulgated as soon as possible, and puts forward the following suggestions:
1. Clarify the nature of partnership private equity investment and fund dividend income, and allow legal person enterprises to deduct before tax. Clarify the nature of the partnership private equity investment fund's dividend from its investment enterprises as soon as possible; For private equity funds invested by legal persons, the dividend and dividend income attributes are retained, and the partnership enterprise "penetrates" the pre-tax deduction to avoid repeated taxation.
2. Clarify the principle of loss compensation and allow investors to pay personal income tax according to the net income of investing in various funds. For private equity funds specializing in equity investment business, investment income belongs to its main source of income, so it should be clear that its investment income belongs to the "total income" of the partnership enterprise and is included in the "production and operation income", and it should be clear that the investment loss as the operating loss of the enterprise can be made up by the production and operation income of the enterprise in the next year. If the income in the next year is insufficient, it can be made up year by year, but the longest period shall not exceed 5 years.