What should be done if there are "shareholder transactions" in the company's accounts? First, separate them into shareholder loans to the company, company loans to shareholders, and loans to other entities.

Many small and medium-sized enterprises, family businesses, and even companies that have been established for many years may have an item in their balance sheet or general ledger called "Shareholder Transactions".

The amount may only be a few hundred thousand yuan, or it may accumulate to:

• Millions;
• Tens of millions;

Even hundreds of millions of yuan.

The company may not have paid special attention to this under normal circumstances, until:

• The State Taxation Administration is conducting an audit;
• Auditor verification;
• Bank financing;
• Shareholder disputes;
• Investors entered the market;
• Company for sale;

It is only when a dispute arises between the responsible parties that it is suddenly discovered that no one can clearly explain what the "shareholder transactions" on the books actually represent.

However, "shareholder transactions" is merely an accounting term.

The real legal and tax issues are:Who gives the money to whom?Why give it?Is there an agreement regarding the return of the money?Is there interest?Is this money a loan, advance payment, salary, expense, surplus, or company funds used for personal purposes?Therefore, when examining shareholder transactions, the first question shouldn't be, "Is this account allowed to exist?"

Instead, first:Fund flow + legal reasons + accounting treatmentLet's put it all back together.

First, "shareholder transactions" are not an independent legal relationship.

The company's books state: "Shareholder transactions do not necessarily mean that they are loans in law."

It may represent:

• Shareholders lend money to the company;
• The company will temporarily make payments on behalf of the shareholders;
• Shareholders advance expenses on behalf of the company;
• The company returned previous loans to its shareholders;
• The funds collected on behalf of the company by the shareholders have not yet been returned.
• The company's funds are temporarily being used by the shareholders;
• Salary or bonus;
• Expense reimbursement;
• Surplus distribution;
• Capital reduction and refund;

Or other transactions.

So what the IRS, the courts, or accountants will really be asking isn't, "What's the account name?"

Instead:Why is this money actually being moved?

Faced with verification and subsequent remedies, it should be handled byTax lawyers and IRS tax audits and administrative remediesFrom this perspective, first confirm the direction and legal nature of the funds.

Second, let's first clarify: Does the shareholder owe the company, or does the company owe the shareholder?

From a corporate accounting perspective, "shareholder transactions" usually require the following distinction:

Shareholders' Debit Balance

This usually means that the company has receivables from its shareholders, which is:Shareholders may owe the company money.For example: If a company gives 5 million yuan to its shareholders for their use, it will be recorded as a debit entry to the shareholders' accounts.

Shareholder intercompany credit balance

This usually represents: the company has outstanding payments to its shareholders, that is:The company may owe money to its shareholders.For example, if a shareholder contributes 3 million yuan to the company for operation, the company's accounts will record it as a credit transaction with the shareholder.

But this is only the general accounting direction.

The actual case still needs to be confirmed:

• Original summons;
• Bank cash flow;
• Transaction facts;

Company accounting policies.

Don't just look at the debit/credit side and immediately make a legal judgment.

3. Is it legal for a shareholder to lend their own money to the company?

When a company is short of operating funds, it is common in practice for shareholders to lend their personal funds to the company.

But the essential details should be left out:

• Borrower;
• Lender;
• Amount;
• date;
• interest rate;
• Repayment period;
• Bank cash flow;

Use of funds.

Only if the company returns the money to the shareholders in the future can it be clearly proven that this is:Repayment of shareholder loansRather than: the company gives funds to shareholders without a reason.

IV. When shareholders borrow money from the company, is it always necessary to have a loan agreement?

Formal contracts usually provide clarity.

But the case cannot be solved simply because "there is no formal IOU".

Therefore, the loan is deemed non-existent.

It is still possible from:

• Bank transfer;
• Accounting voucher;
• Shareholder transactions;
• Board of Directors or internal records;
• Use of funds;
• Repayments over the years;
• Interest payment;

The company's financial statements reconstruct the true legal relationship.

Conversely, even if a "loan agreement" can be produced afterward, if the bank's cash flow does not match the actual situation at all, the paper agreement alone cannot prove everything.

Fifth, the issue is entirely different when the company lends money to its shareholders.

If the direction of funds is reversed:Company → ShareholdersIt cannot be treated as a typical shareholder transaction.

At least the following should be checked simultaneously:

Taxation

Do we need to calculate interest income?

Company Law

Is the company's lending of funds legal?

Corporate Governance

Who approved this funding?

Civil

Do shareholders have an obligation to return the money?

criminal

If there is no legal basis whatsoever, is there any question of misappropriation, breach of trust, embezzlement, or other doubts?

These are different levels, and cannot be simply described as "recorded in the accounting books".

Then answer all the questions.

6. What will the State Taxation Administration think if a company lends money to its shareholders without interest?

According to the current lawIncome Tax LawArticle 24-3, Paragraph 2: If a company lends funds to a shareholder or any other person without charging interest or with an agreed-upon low interest rate, the interest rate shall be calculated based on the Taiwan Bank benchmark interest rate as of January 1st of the year in which the funds were lent.Interest incomeTaxation.

In other words, even if the company truly hasn't received a single penny of interest, it may still be subject to taxation requirements.Calculate the interest income.

7. What is "calculated interest"?

Simply put: the company is giving away its own funds to others for free.

Although no interest has been received in the accounts, tax law may require the calculation of interest income that should be included in the company's revenue.

For example: The company provides a sum of money to its shareholders for use without interest for a long period of time.

The company might think, "Since we haven't received any interest, we have no revenue."

However, Article 24-3 of the Income Tax Act deals with this situation.

Therefore, what really needs to be calculated is:

• Loan amount;
• During the period of fund use;
• Applicable year;

Taiwan Bank's benchmark interest rate on January 1 of that year.

Do not directly use the fixed interest rate from other years.

Each year, the interest rate should be recalculated according to the laws and interest rates of that year.

8. If the account only shows "other receivables" and not transactions with shareholders, can it still be investigated?

Accounting subject names cannot replace the substance of a transaction.

For example, the company's accounts state:

• Other receivables;
• Temporary payment;
• Payment on behalf;
• Prepayment;

Other exchanges.

In reality, the company has been entrusting its funds to shareholders or related parties for long-term use.

The IRS may still look back to see how the funds were actually used.

Therefore, don't assume that as long as it's not called "shareholder transactions"...

Therefore, there is no issue with Article 24-3 of the Income Tax Law.

9. How does the State Taxation Administration determine whether a company is lending money to its shareholders?

Commonly checked items:

• Bank account;
• General ledger;
• Shareholder transaction details;
• Other receivables;
• summons;
• Reason for payment;
• Payment recipient;
• Loan agreement;
• Internal company approval;
• Interest;
• Repayment;

Year-end balance.

For example, if the accounts show a high amount of shareholder debit balances at the end of each year, and these balances have not been settled for many years, the IRS may naturally ask further questions: What exactly is this money?

Why can shareholders use it for a long time?

Did you charge interest?

When you first receive the notification, you can first understand...This is the first explanation of how to prepare after receiving a tax audit or tax adjustment notice from the National Taxation Bureau..

10. What happens if a company borrows money from a bank and then lends it to its shareholders instead of using its own money?

At this point, in addition to Article 24-3 of the Income Tax Law, the following should also be checked: the company's own:Interest expense.According to the current lawCorporate Income Tax Verification StandardsArticle 97, Paragraph 11, If it is a profit-making enterprise:

• On the one hand, borrowing funds and paying interest;

On the other hand, funds may be lent out interest-free or the interest received may be lower than the interest paid. For the interest paid on the loan amount, or the related difference, it is possible that:It is not recognized as the company's interest expense.Therefore, the real tax issue in some cases is not just: "How much interest income should be calculated?"

Another possible question is: "Can the company fully recognize the interest expenses it originally declared?"

11. Why is it essential to investigate the "source of funds"?

For example: Company A lends 10 million yuan to its shareholders without interest.

The tax analysis might differ depending on whether the 10 million yuan was originally the company's own funds or the company borrowed 10 million yuan from a bank, paid 4% in interest, and then lent the money to the shareholders for free.

Therefore, when organizing shareholder transactions, do not only do the section from "Company → Shareholder".

We still need to keep chasing:Where does the company's money come from?

12. Can a company legally lend money to its shareholders?

It is essential to include the following here:Taxationand:Company Lawseparate.

The income tax law stipulates how to tax funds when a company lends money to its shareholders, but this does not mean that any company lending money to its shareholders is automatically legal under company law.

in force"Company LawArticle 15 of the principle stipulates that company funds shall not be arbitrarily lent to shareholders or any other person.

The law stipulates:

• There are business dealings between companies or between a company and a business establishment;

Or: exceptions include situations where there is a need for short-term financing between companies or between banks.

The short-term financing portion is subject to legal restrictions such as net asset value 40%.

Therefore, if the recipient is an individual shareholder, it is especially important not to use the statement "shareholder loan" in the account.

The issue of presupposing company law has been resolved.

13. Are Article 15 of the Company Law and Article 24-3 of the Income Tax Law contradictory?

Won't.

The two laws address different issues.

Article 15 of the Company Law

Solution: Can company funds be lent in this way?

Article 24-3 of the Income Tax Law

Handling: When company funds have been lent to shareholders or others, how should the relevant income tax be calculated?

Therefore, a transaction may require the calculation of interest under tax law, and at the same time, it still needs to be checked under corporate law to see if the loan is legal.

Taxation does not legalize corporate actions.

14. What happens if Article 15 of the Company Law is violated?

According to Article 15 of the current Company Law, when a company's responsible person violates restrictions on lending funds, the law will impose the following penalties:

• Return of responsibility;

There are provisions regarding liability for damages.

Therefore, the chairman or person in charge cannot simply say, "This money is recorded in shareholder transactions, and the company will recover it later."

It should also be confirmed whether the company originally had the right to lend out the funds.

15. If a company pays for a shareholder's personal expenses, is it sufficient to record it as "shareholder transactions"?

This issue should not be resolved solely by accounting entries.

For example, a company paying on behalf of its shareholders:

• Private home purchase payment;
• Household expenses;
• Private credit cards;
• Private insurance;
• Private travel;

Personal taxes.

The company's accounts record everything as "Shareholder Transactions".

The law still needs to ask: Is this a loan?

Salary?

dividend?

Payment on behalf of someone else?

Other benefits?

Or were company funds misused for private purposes?

Different legal natures can lead to completely different corporate law and tax consequences.

so:Shareholder transactions cannot be used as a universal temporary account for all private expenditures.

16. If a company advances money for its shareholders and then repays it, is it necessarily without problems?

It cannot be simplified in this way.

Should be seen:

• How long will the funds be tied up?
• Amount;
• Whether it was actually returned;
• Is there interest?
• Why did the company make the advance payment?
• Is there a legitimate business reason?
• Company internal procedures;

Does it happen repeatedly?

For example, if you repay the loan at the end of the month and then lend it out again a few days later, you may repeatedly tie up a large amount of capital. You cannot simply look at the statement: "The year-end balance is already zero."

A full annual cash flow should still be examined.

17. If a shareholder repays the money at the end of the year and then borrows it again the following year, can they avoid calculating interest?

Do not use the year-end book balance as the sole criterion.

Article 24-3 of the Income Tax Law deals with: the actual period of fund lending.

Therefore, the real task is to organize: each time:

• Loan date;
• Repayment date;
• Amount;
• period;

interest rate.

Don't just use the balance sheet as of December 31st to answer questions about the use of funds throughout the year.

18. A shareholder says, "This isn't a loan; it's money I previously advanced for the company, and I'm getting it back." How can this be confirmed?

This is a very common controversy.

First, we should find out: When did the previous shareholders transfer money to the company?

How did the company record this in its accounts at that time?

Are there any shareholder-related lending transactions?

What will the company do with this money?

How much will be refunded now?

Can the preceding and following statements be reconciled?

If a shareholder did borrow 10 million yuan from the company in the past, and the company is now returning 5 million yuan, it may essentially just be repaying the original debt.

But what if there is no record of shareholder loans at all, yet the IRS only claims, "We previously advanced funds," after conducting an audit?

This requires objective evidence to support it.

19. If a company's accounts have long-term credit entries related to shareholders, what will the IRS ask?

If the company owes money to its shareholders, it may be necessary to confirm:

• Source of shareholder funds;
• Evidence of importation into the company;
• Verification of the loan's authenticity;
• The company uses funds;
• Is interest payable?
• How should interest be accounted for?

Whether it was withheld in accordance with the law.

Especially when the amount is large, it should not just be a single number in the account.

Ideally, we should go back to the real: shareholder → corporate bank cash flow.

20. If a company borrows money from its shareholders and pays interest, can this be listed as an expense?

Requirements:

• The loan is genuine;
• The funds were indeed used for the company's business operations;
• Interest actually paid;
• certificate;
• Withholding;

Regulations related to interest rate limits, etc.

According to the corporate income tax audit guidelines, interest on loans taken out by companies outside the financial industry cannot be recognized without any restrictions.

Therefore, a company borrowing money from its shareholders and a company lending money to its shareholders are two completely different tax implications.

Don't confuse them under the same category: "Shareholder Transactions"

No further analysis will be conducted after the subject.

21. If a shareholder, director, or supervisor collects company funds on behalf of another and fails to return them, will there be an issue of calculating interest?

meeting.

Article 24-3, Paragraph 1 of the Income Tax Law further stipulates that: For companies organizing:

• shareholder;
• director;

If an inspector fails to pay company funds collected on behalf of the company within the appropriate period, or misappropriates company funds, the inspector shall, in accordance with the law, calculate the company's interest income for the relevant period and tax it accordingly.

Therefore, Article 24.3 does not only apply if a formal corporate loan agreement is signed.

If, in reality, company funds are being misappropriated by relevant personnel for an extended period, caution is also warranted.

22. Why should interest be calculated on the company's assets when the company was clearly misappropriated by the person in charge?

Article 24-3, paragraph 1 of the Income Tax Act contains an exception.

If the company is indeed:

• Suffered occupation;
• Breach of trust;

If the act is fraudulent and meets the conditions stipulated in the article, such as: a lawsuit has been filed in accordance with the law or a public prosecution has been initiated by a prosecutor, the law stipulates that: no related interest income shall be calculated.

Therefore, if the company itself is:The victimYou can't say: "The company lends money to its shareholders."

He: "Company funds were illegally taken away."

They are considered the same thing.

23. What should be done if the company's accounts show "shareholder transactions" but the person in charge has actually misappropriated the funds?

At this point, the tax and the company's losses should be handled separately.

First, confirm: Who took the money?

Is there any company authorized?

What is its purpose?

Did the company gain any benefit?

Do we need to return it?

Has the company taken any legal action?

If it actually belongs to:

• Encroachment;
• Breach of trust;
• Fraud;

If other company assets are infringed, then a separate procedure should be initiated:

• Company Law;
• Civil claims for compensation;
• Criminal complaint;

Evidence preservation framework.

Don't leave all funds in "shareholder transactions" for extended periods just for accounting convenience.

From the perspective of protecting assets by the company or minority shareholders, please refer to...How to audit and trace cash flow when shareholders suspect that the person in charge has misappropriated company funds?.

24. If the amount of money involved in shareholder transactions is very large, will it be directly considered as tax evasion?

Tax evasion will not automatically constitute a criminal offense simply because the amount involved is large.

The IRS may conduct an initial inspection:

• Did the company omit any provisional interest income?
• Are there any improper recognitions of interest expenses?
• Was the transaction genuine?

The true purpose of the funds.

Whether this further involves criminal liability under the Tax Collection Law depends on:

• Specific acts of tax evasion;
• Improper methods;
• Subjective intent;

The tax amount will be determined separately.

so:pay an overdue taxand:criminal offensesWe still cannot directly equate them.

If there are other inaccurate accounting records or specific criminal allegations, they should be distinguished separately.Fake transactions, false invoices, and tax and criminal liability.

25. When the State Taxation Administration investigates shareholder transactions, what should be included in the first batch of documents?

At least organize:

1. General Ledger of Shareholder Transactions

Detailed breakdown of each item.

2. Bank statements

Actual transactions between the company and its shareholders.

3. Beginning Balance

From which year did this money begin?

4. Loan Agreement

If you advocate lending.

5. Repayment history

How much to pay each time?

6. Interest

Whether it is agreed upon, paid for, or calculated.

7. Sources of Funding

Is it the company's own funds or bank loans?

8. Use of Funds

What do the shareholders do with it?

9. Company Decisions

Who approved it?

10. Accounting Treatment

How to record each transaction.

Don't just submit: a balance from the year-end balance sheet.

26. The most effective way to organize information: Create a "Shareholder Funds Timeline".

For example:

1. 2024/1/10
   Shareholders transferred 5 million yuan to the company.
2. The company's accounts show a credit balance of 5 million yuan for shareholder transactions.
3. 2024/6/1
   The company returned 2 million yuan.
4. Balance of 3 million yuan
5. 2025/3/1
   The company transferred an additional 6 million yuan to its shareholders.

At this point, it's not appropriate to simply say, "The debit balance of shareholder transactions in 2025 was 3 million yuan."

What really needs to be confirmed is: how much of it is:

• Return the old loan;

How much is:

• New funds loan;

Does it need to calculate interest?

27. If a company's shareholder is also another company, are the rules the same?

The model of individual shareholders cannot be used entirely.

If both parties to the transaction are companies or firms, in addition to taxation, Article 15 of the Companies Act applies to:

• Business dealings;

Short-term financing has specific exceptions and restrictions.

If it is also a related company, or even a foreign related company, it may further involve:

• Related-party transactions;
• Transfer pricing;
• interest conditions;

Other tax regulations.

This article still focuses on shareholder transactions and general lending.

Financing cases involving complex multinational relationships should be evaluated separately.

28. Does the fact that the Company Act allows for lending of funds mean that the IRS cannot calculate interest?

no.

For example, in the case of financing between two companies: even if the conditions for lending funds are met under company law, separate confirmation is still required for tax purposes.

• Did you charge interest?
• Is the interest rate reasonable?

Whether adjustments are required in accordance with the Income Tax Law or other tax regulations.

so:Company Lawand:No tax adjustments are needed.It's not the same thing.

29. The National Taxation Bureau has already paid the outstanding taxes; can we still argue against it?

If you have already received it:

• Approved;
• pay an overdue tax;

Before imposing a fine, the following should be confirmed: the date of service and the statutory period for relief.

If it is still within the period, it can be assessed in accordance with the law:

• Re-examination;
• Appeals;

Administrative litigation.

In shareholder transactions, in particular, the common points of contention are not just calculation errors, but also the different understandings of the legal nature of funds between the IRS and the company.

For example:

• The IRS considers this a loan from the company to its shareholders;

The company's claim is to return the original advances made by the shareholders.

What's really needed at this point is a complete record of cash flows and accounts for the preceding and following years.

Once a disciplinary action has been taken, it should be confirmed promptly.Review, appeal and administrative litigation after receiving supplementary tax or fines.

30. When disputes arise in shareholder transactions, why are they often not just tax issues?

Because the same company funds may involve:

• Income tax;
• Company law fund lending;
• Shareholders' equity;
• Director's responsibilities;
• Corporate governance;
• Accounting books;
• Civil restitution;

Even criminal liability.

For example, if a minority shareholder discovers that the company has been handing over money to the person in charge for many years, they might ask, "Why is all the company's money being used for shareholder transactions?"

At this point, the case will move from the tax aspect to the following:

• Shareholder audit;
• Company asset protection;

Responsibilities of the person in charge.

Therefore, the same accounting item can lead to completely different legal issues depending on the perspective of different parties involved.

31. How does Fidelity Law Firm handle disputes concerning company shareholder transactions and cash flow?

In cases like these, you can't just show the balance sheet to the lawyer.

What truly needs rebuilding is:Shareholders ↔ CompanyFor each transaction:

• date;
• Amount;
• direction;
• reason;
• Bank cash flow;
• Accounting subjects;
• Legal basis;
• Return;
• Interest;

Company decision-making.

To divide it further:

Taxation

Are there any interest or income adjustments included?

Company Law

Does the loan comply with the Company Law?

Shareholder rights

Has the company's funds been misappropriated by specific shareholders or responsible persons for an extended period of time?

Civil and Criminal

Is there any issue of restitution, damages, or criminal liability?

Attorney Li Yusheng previously served as the assistant manager of the legal department at Deloitte Touche Tohmatsu, where he worked extensively with accountants, corporate finance teams, and company management on corporate, accounting, tax, and legal issues.

The real crux of these cases isn't: "How should the shareholder transaction account be recorded?"

Instead:Whose money is this? Why was it moved? And how should it be legally classified?

It can also be used normally.Corporate legal counsel and daily legal risks for businessesManage and retain loan, repayment, and company authorization information.

Common Issues Regarding Shareholder Transactions, Company Loans, and Interest Calculation