On the Eve of Listing: Double Thunderstorms of 7.8 Million Arrears in Taxes and Foreign Capital Compliance Defects

In 2021, a biopharmaceutical enterprise focusing on the R&D of tumor targeted drugs was in the critical window period of applying for the Sci-Tech Innovation Board. After years of arduous R&D efforts, the enterprise was about to face the inspection of the capital market.

However, during the internal review by securities firms, two "time bombs" were detonated simultaneously:

• Tax Minefield: The founder team and early investors failed to withhold and pay personal income tax in 6 equity transfers from 2015 to 2021, with accumulated arrears as high as 7.8 million yuan. The root cause lies in the misunderstanding of the "individual income tax policy for non-monetary asset investment".
• Foreign Capital Red Line: Two American shareholders holding a total of 12% equity failed to complete foreign exchange registration in accordance with regulations, which was questioned for "compliance of foreign capital shareholding" and may touch the red line of foreign capital access to the Sci-Tech Innovation Board.

If the rectification cannot be completed in a short period of time, the Pre-IPO round of financing and the listing plan will be completely stalled. Years of R&D investment and hundreds of millions of yuan in market expectations will all come to naught in this compliance storm.

Emergency Response: Completing Full-Chain Verification of Equity Changes Within 72 Hours

At the first moment of the crisis outbreak, the capital market team of our firm set up a special working group to intervene urgently. The team established an emergency strategy of "clarifying facts, classified disposal, and rapid rectification", and established a wartime communication mechanism with the enterprise's founder team, financial person in charge, and securities sponsor.

The special team completed the full-chain penetration verification of 6 equity transfers within 72 hours:

• Retrieving Bank Flows: Tracking the capital flow and payment records of each equity transfer
• Sorting Out Agreement Documents: Reviewing equity transfer agreements, shareholders' meeting resolutions and supplementary agreements one by one
• Clarifying Taxable Entities: Identifying the entities liable for tax payment and the reasons for arrears in each transaction

• Locking Liability Attribution: Distinguishing the amount of arrears and liability boundaries of the founder team and early investors respectively

Tax Breakthrough: Special Communication to Secure Supplementary Payment Plan and Exemption from Administrative Penalties

Verification is only the first step; the real test is how to communicate with tax authorities and strive for the most favorable handling results.

Special Communication Meeting: Explaining Misunderstanding of Policies

The team assisted the enterprise in sorting out the "Explanation on Tax-related Matters", detailing that the arrears were caused by the misunderstanding of the "individual income tax policy for non-monetary asset investment" rather than the subjective intention to evade taxes. Subsequently, it coordinated with the competent tax authorities to hold a special communication meeting to explain and communicate face to face.

Striving for Exemption from Administrative Penalties

After multiple rounds of professional communication, the tax authorities finally recognized the enterprise's explanation and issued a "Certificate of Exemption from Administrative Penalties". This result not only exempted the enterprise from additional fine burdens, but more importantly, avoided the negative impact of administrative penalty records on the listing application.

Designing Instalment Supplementary Payment Plan

The amount of arrears is 7.8 million yuan, and a one-time supplementary payment will put great pressure on the enterprise's cash flow. The team negotiated with the tax authorities and innovatively designed an instalment supplementary payment plan:

• First Instalment: 30% of the arrears to be supplemented within 3 months
• Remaining Amount: The remaining amount to be paid off in 12 instalments
• Safeguard Measures: The shareholders issue a "Letter of Commitment for Supplementary Payment" to clarify the liability for overdue supplementary payment

This plan not only meets the regulatory requirements for tax payment into the treasury, but also reserves capital turnover space for the enterprise to ensure that the R&D of new drugs is not affected.

Foreign Capital Compliance: Identity Verification of American Shareholders and Supplementary Registration of Foreign Exchange

For the foreign exchange registration issue of two American shareholders, the team conducted prudent verification and correction work:

• Identity Verification: Reviewing shareholders' passports, overseas tax resident certificates and fund source documents, and confirming their identity as "non-Chinese tax residents" through notarization
• Foreign Exchange Supplementary Registration: Assisting shareholders in preparing a full set of application materials and completing the supplementary registration procedures for foreign exchange registration
• Compliance Confirmation: Eliminating compliance defects in foreign capital access to ensure the legality and transparency of foreign capital shareholding

Penetration Verification: Restoring the True Equity Structure of 3 Nominee Holding Entities

During the verification process, the team also found that 3 limited partnerships were actually nominee holding entities, with the risk of equity holding on behalf of others. The Sci-Tech Innovation Board has strict requirements on the clarity of equity, and the issue of nominee holding must be completely resolved.

The team conducted penetration verification on the 3 nominee holding entities:

• Penetrating layer by layer to the ultimate funders
• Restoring the true shareholding structure of the actual controller
• Sorting out the background and reasons for the formation of the nominee holding relationship
• Issuing a "Special Explanation on Equity Clarity" to disclose in detail the penetration results and rectification situation

This explanation was finally recognized by the exchange, and the issue of equity clarity was successfully resolved.