Analysis of Tax Violations in the Low-Price Equity Transfer by the Actual Controller of Liqi Intelligent

Based on the information I have collected, I will conduct a professional analysis of the low-price equity transfer by the actual controller of Liqi Intelligent via a U.S. enterprise prior to the company’s planned IPO.

According to public reports, Lu Haodong, the actual controller of Liqi Intelligent, has the following relationships with relevant enterprises [1][2]:

• Deyida
  : An enterprise actually controlled by Lu Haodong
• US Ross
  : Parent company of Wuxi Ross (foreign investor)
• Wuxi Ross
  : Originally a subsidiary of US Ross, later acquired and controlled by Liqi Intelligent
• Liqi Intelligent
  : A planned IPO enterprise founded by Lu Haodong

[2]:

Transaction Direction	Transferor	Transferee	Equity Transfer Ratio	Transaction Price	Corresponding Valuation
Transaction 1	Deyida	US Ross	35%	USD 600,000	~USD 1.8 million
Transaction 2	US Ross	Liqi Limited	51%	USD 12.6 million	~USD 25 million

: According to the prospectus disclosure, the originally agreed price for Deyida’s direct transfer to Liqi Intelligent should have been USD 19.25 million (calculated based on the overall valuation of Wuxi Ross of USD 55 million) [2]

According to relevant provisions of Chapter VI of China’s Enterprise Income Tax Law and the Measures for the Implementation of Special Tax Adjustments [3][4], transactions between related parties must comply with the “Arm’s Length Principle”. The following obvious issues exist in this case:

• The price of the equity transferred from Deyida to US Ross was USD 600,000 (valuation of ~USD 1.8 million)
• The price of the equity transferred from US Ross to Liqi Limited corresponds to a valuation of USD 25 million
• For the same target equity, the transfer price between related parties at the same time differs by more than
  13 times

• Both Deyida and Liqi Intelligent are actually controlled by Lu Haodong
• US Ross and Wuxi Ross have a parent-subsidiary relationship
• These transactions essentially constitute a complex cross-border related-party transaction

According to China’s anti-tax avoidance regulations [3][4][5], this transaction model is suspected of involving the following tax avoidance arrangements:

Deyida (controlled by Lu Haodong)
  → Transferred to US Ross at a low price of USD 600,000 (reducing Deyida's equity transfer income)
  → US Ross then transferred to Liqi Intelligent at a high price of USD 12.6 million

:

• As an enterprise controlled by Lu Haodong, if Deyida transferred the equity directly at USD 600,000, its equity transfer income would be significantly reduced
• After the transfer via US Ross, the transfer income obtained by US Ross may be taxed in the U.S., but China’s tax authorities have limited taxation rights over US Ross
• The premium paid by Liqi Intelligent ultimately went to US Ross, not Deyida

According to relevant Chinese tax regulations [3][4][5]:

1. Articles 41-47 of the Enterprise Income Tax Law
   : Transactions between related enterprises shall be conducted in accordance with the arm’s length principle; otherwise, tax authorities have the right to make tax adjustments
2. Measures for the Implementation of Special Tax Adjustments
   :
   • Article 9: If the business transactions between an enterprise and its related parties do not comply with the arm’s length principle and reduce the taxable income or income amount of the enterprise or its related parties, the tax authorities have the right to make adjustments using reasonable methods
   • Transfer pricing methods include the comparable uncontrolled price method, cost-plus method, resale price method, etc.
3. Measures for the Administration of General Anti-Tax Avoidance
   :
   • For arrangements without a reasonable commercial purpose, tax authorities have the right to conduct anti-tax avoidance investigations
   • Tax benefits can be canceled, and the existence of tax avoidance entities can be negated

Calculated based on the difference between the originally agreed USD 19.25 million and the actual transaction price of USD 600,000, the reduction in equity transfer income involved is huge, and the corresponding income tax amount is considerable.

These transactions occurred in December 2020, during Liqi Intelligent’s IPO preparation period, and are capital operations during a “sensitive period”.

According to reports, Liqi Intelligent “did not accept reporter interviews” when responding to media inquiries [2], and this attitude itself is worthy of attention.

From a legal perspective, the transaction structure of the low-price equity transfer by Liqi Intelligent’s actual controller via a U.S. enterprise

, and may be suspected of using cross-border related-party transactions to evade Chinese income tax obligations. The main doubts include:

• Huge price difference (more than 13 times) for the same target between related parties at the same time
• The transaction structure is complicated, increasing the difficulty of supervision by tax authorities
• The ultimate beneficiary may point to an offshore entity

According to Article 36 of the Tax Collection and Administration Law and Article 48 of the Enterprise Income Tax Law [3][4]:

• Tax authorities have the right to make special tax adjustments
• Levy supplementary taxes and add interest (based on the benchmark interest rate plus 5 percentage points)
• May face corresponding late payment fees

In view of the complex cross-border equity transactions and transfer pricing issues involved in this case, it is recommended to pay attention to:

• The follow-up review progress of regulatory authorities on such transactions
• Relevant disclosures about equity transactions in the company’s prospectus
• Whether the company has received a special tax adjustment notice from the tax authorities

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there is currently no public information showing that tax authorities have initiated formal investigation procedures for this case. The above analysis is based on transaction information from public reports and relevant tax regulations, and the final conclusion shall be subject to the official investigation and determination of the tax authorities.

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[1] Sina Finance - “Liqi Intelligent Obtained RMB 130 Million in Tax Incentives Prior to IPO; Lu Haodong Poached from His Former Employer” (https://finance.sina.com.cn/roll/2025-08-05/doc-infixiyy7785088.shtml)

[2] Tencent News - “Chaotic Equity Transaction Prices of Liqi Intelligent’s Subsidiary; Major Errors in Disclosure of Executives’ Resumes” (https://news.qq.com/rain/a/20260119A03TD600)

[3] State Taxation Administration - Measures for the Implementation of Special Tax Adjustments (Trial) (Guoshuifa [2009] No. 2)

[4] Enterprise Income Tax Law of the People’s Republic of China and its Implementation Regulations

[5] KPMG - “New Tax Regulations on Indirect Transfers of Chinese Assets by Offshore Parties Issued” (https://assets.kpmg.com/content/dam/kpmg/cn/pdf/zh/2016/09/china-tax-alert-1502-03.pdf)