Legal System Research On Taxation Of Listed Company’s Employee Stock Ownership Trust In China

Employee Stock Ownership Plans originated in America. According to the definition of the ESOP Association, An Employee Stock Ownership Plan(ESOP) is an employee benefit plan which makes the employees owning stock in that company.The ESOP not only protects the interests of the owner but also the interests of employees. At the same time, it can ease relations between workers and owners. The ESOP provides an effective way for employees to participate in company’s management. More importantly, it has already become an essential component of employee retirement benefits, which reduced the government’s pressure. In western countries, after a long period of development, the ESOPs are widely used in practice.In August,2012, the SFC issued "Draft Rules of Listed Company’s ESOP ". It has made many restrictions on the ESOP, including fund sources, stock sources, holding period and management mode. So it didn’t obtain expected effect. In November,2013, CPC issued "Decision on some Major Issues Concerning Comprehensively Deepening Reforms ", in which CPC put forward " allowing mixed enterprises to implement ESOP to form communities of capital owners and workers". On May 9,2014, the State Council issued the "Opinions on Promoting the Healthy Development of Capital Market". The government allows listed companies to carry out ESOP in various forms and affirms their positive significance. In June 20,2014, the SFC issued "Guidance on the Listed Companies’ ESOP".Since then, there were more than a hundred listed companies launching ESOP. In addition to the traditional model, there were many innovative models, which mainly reflected in fund’s source, stock’s source,etc. All these indicated that the ESOPs’ scales are gradually expanding.But due to lack of supporting system, the operation of ESOP faced many problems in practice. The total amount of capital of one ESOP is about hundreds of millions or even billions, tax cost has become a huge burden. In addition, there are no relevant laws about ESOP, which hindered its development.This paper is based on the above points, by using the methods of literature analysis, case study, comparative analysis, I discussed the basic principles of ESOT taxation, the advantages of trust model and found out some tax problems of ESOT. I studied ESOPs in foreign countries, and focused on the analysis of tax policy related to ESOT in America. From the tax perspective, I tried to construct a legal system on taxation which is suitable for ESOT’s development in China.In the first chapter, I mainly discussed the legal basis of ESOT, including the double factors of economic theory, human capital theory, shareholder theory and the theory of share system reform. In addition, from the view of fair tax burden, I studied on taxation of ESOT combined with No taxation with pro forma shifts, Taxation on the substantial beneficiary, Avoidance of double taxation and Efficiency principle of Taxation.In the second chapter, I analyzed 7 differences between the stock option system and the ESOP, including the risk of ownership, flexibility,etc. And then,I analyzed the advantages of combining ESOP with trust, which are described in detail from five points. I thought that using the trust mode to administer the plan is benefit to the development and promotion of ESOP. I also discussed the significance of developing ESOT from the view of enterprise, individual and social.In the third chapter, I summarized the tax problems faced in ESOT by analyzing four cases. First of all,I analyzed the guidance and counts up the amount of listed companies which launched ESOT until 14 th March. Then I selected 4 representative cases to analyze the tax problems, mainly in five aspects. First, the tax burden increased transaction costs. From a personal point of view, there was double taxation issue. From the perspective of the enterprise, an ESOP needed hundreds of millions fund, which means the tax amount is huge that increased the cost of the plan. All of these would reduce the ESOP’s appeal, even hinder its implementation. Second, the instability of taxation would increase risk of participating parties. Third, the taxpayer was not clear, we didn’t formulate the taxation law of trust, and the tax obligations of a trustee was unknown. Fourth, due to taxation was uncertain, many listed companies’ ESOPs were temporarily shelved, and they had to communicate with relevant departments, which increased the cost of the plan as well. Fifth, due to lack of tax breaks, the plans were unable to get effective promotion.In the fourth chapter, I briefly introduced the operation mode and characteristics of other countries’ ESOP. And I focused on ESOT’s background in America. I listed the tax breaks of ESOT, from the perspective of the listed company which had ESOT, the shareholders who transferred shares, the employees who got shares and financial institutions that provided loans to company. Then, I tried to find a suitable mode of developing ESOT in China.In the fifth chapter, on the study of relative systems in other countries, I tried to establish tax law system of ESOT. On the one hand, the law system need to be established to regulate legitimacy of ESOT and solve its tax problems. On the other hand, I tried to construct several tax breaks, from the view of corporation, shareholders, employee,etc, including income tax, business tax and other taxes, in order to benefit ESOT.Through the above analysis,I thought that the ESOT can motivate the employees’ enthusiasm, enhance their responsibilities and promote economic development.The use of trust model can realize the long-term and stability of ESOT and play its role in welfare.However, if you want to flourish ESOT, you must construct related system. Therefore, I thought that we need to issue laws to specify the taxation of ESOT as soon as possible. At the same time, we need to regulate tax breaks for each participation of the plan to enhance ESOTs’ attractiveness,which can promote their development.This paper has several innovation:First of all, I analyzed the process of ESOP’s operation of capital, management pattern, holding period, transferring of shares and other related issues with "guidance" which was issued in last year. And on the basis of compare "guidance" with "draft", I analyzed the tax problems of ESOT.Secondly, I analyzed the status of ESOT’s implementation of the listed companies by using data.I selected the ESOT which was disclosed after the issue of guidance until March 14,2015 as statistical sample, I studied on the origin of the stock and capital source, calculated the proportion of all kinds of ways and found that the launch of ESOT was quickly and there were several innovate models. However, in practice, they faced many problems, including a huge amount of tax cost.Thirdly, I used case analysis method to study the problem. I selected 4 listed companies’ ESOT, carried out some tax issues involved in each project and analyzed the obligation of tax payment from different subjects involved in the plan.Fourthly, I analyzed the tax law system of ESOT.The former studies mainly focused on the legal nature and legal status of it,the taxation is involved too, but not comprehensive.In this paper, on the basis of the case,I summarized the problems in the taxation system and tried to establish tax breaks from different participation of the plan.In addition, this paper also has some shortcomings. First of all, ESOP not only related to "Securities Law", "company law", "trust law" and other laws, but also related the income tax, business tax and other tax issues and accounting,economics,etc, so the study is not complete. Secondly, the quantitative research is insufficient because lack of a large number of empirical data.At the same time, due to the information disclosure system of listed companies is not perfect, some of the data cannot be obtained, so the study is not comprehensive.