In corporate mergers and acquisitions, financial restructuring and valuation adjustment are common business strategies, but their application must strictly comply with laws, regulations and accounting standards. The following analysis is conducted from the perspective of **legal compliance** and **potential risks**, and aims to provide professional insights rather than operational guidelines. --- ###1. Legal application of financial restructuring and valuation adjustment 1. **Tax optimization (non-avoidance)** -**Cross-border structure design**: Through rational use of differences in tax rates in different countries or regions, such as the establishment of holding companies in low-tax areas for equity transfer or asset transfer, it must comply with the principle of “reasonable business purpose” (such as Article 47 of China's Corporate Income Tax Law). -**Tax-exempt reorganization**: In accordance with the tax-exempt conditions stipulated in the Tax law (such as the proportion of equity payment reaching the standard), the tax obligation is deferred through the stock exchange transaction. -**Debt restructuring**: By adjusting the debt structure of the target company (such as debt-to-equity conversion), to reduce the cost of interest, tax and other costs, it must comply with the market interest rate (such as the provisions of China's "Special Tax Adjustment Measures" on related Party borrowing interest rates). 2. **Reasonable basis for valuation adjustment** -**Performance bet agreement (Earn-out)**: Part of the transaction consideration is linked to future performance, and the risks of buyers and sellers are balanced through dynamic valuation adjustments. The terms need to be disclosed and comply with accounting standards. -**Asset divestiture and revaluation**: When divesting non-core assets, a fair price must be determined based on an independent third-party evaluation report to avoid suspicion of benefit transfer. --- ###2. Potential means and risks of benefit transfer and tax avoidance 1. **Concealed operation of benefit delivery** -**Transfer of assets in related-party transactions**: The sale of high-value assets (such as intellectual property rights and land use rights) to related parties at non-fair prices may violate the provisions of the "Company Law" on the moral obligations of controlling shareholders. -**Inflated/reduced valuation**: Adjusting the underlying valuation by manipulating financial data (such as accounts receivable, goodwill) may involve financial fraud (such as Article 85 of China's Securities Law, which imposes liability for false statements). -**Compensation agreement**: Additional compensation terms are agreed privately, which harms the interests of small and medium-sized shareholders and may trigger regulatory investigations (such as the SFC's "Administrative Measures for the Acquisition of Listed Companies"). 2. **Illegal path of tax avoidance** -**Transfer Pricing**: Artificially lowering or raising transaction prices in cross-border transactions and transferring profits to low-tax areas may be subject to anti-tax avoidance adjustments by tax authorities in accordance with the OECD's BEPS rules. -**Abuse of tax treaties**: The application of tax treaty preferences through “shell companies” may be recognized as ”conduit companies" and invalid (such as China's "General Anti-Tax Avoidance Administrative Measures"). -**Capital weakening**: Increasing interest deduction through excess debt financing is subject to debt-to-capital ratio restrictions (for example, China stipulates that the debt-to-capital ratio of financial enterprises is 5:1, and that of other enterprises is 2:1). --- ###3. Legal and regulatory risk warning 1. **Subject to domestic regulations** -"Enterprise Accounting Standard No. 20-Corporate Mergers" requires that the consideration of mergers and acquisitions reflect the fair value. -Article 35 of the “Tax Collection and Administration Law” gives the tax authority the right to approve transactions that are "obviously low and without legitimate reasons". -Articles 162 and 201 of the Criminal Law stipulate criminal liability for the crimes of false bankruptcy and tax evasion. 2. **International anti-tax avoidance trends** -The BEPS Action Plan (such as Item 6 to prevent abuse of agreements and Item 13 country report) requires transparency in cross-border transactions. -CRS (Common reporting standard) promotes the exchange of global tax information and increases the exposure risk of concealed operations. --- ###4. Compliance recommendations 1. **Follow the Arm's Length Principle** to ensure that the trading terms are consistent with market conditions. 2. **Improve information disclosure** and disclose the basis for restructuring and valuation to shareholders, regulatory agencies and tax authorities. 3. **Introduce independent third-party evaluation** to avoid conflicts of interest in related-party transactions. 4. **Conduct tax planning (non-avoidance) in advance**, and design a compliance structure in combination with professional institutions. --- In short, financial restructuring and valuation adjustment are neutral tools in themselves, but their application needs to be based on commercial substance to avoid touching legal red lines. Any attempt to transfer benefits or evade taxes through manipulation of financial data or transaction structures may result in serious civil, administrative or even criminal liability.